Thursday, September 9, 2010

How to Get Rich Slowly DRIP by DRIP: The Initial Investment

Do you want to be “an investor” but you don’t have the cash? Do you want to save for retirement or a trip around the world – but you can’t see how you’ll reach your goal?

If you answered “yes”, a DRIP account – a Dividend ReInvestment Plan account – might be the solution.

The Main Thing
There’s a lot to learn about DRIP accounts. I’ll go there later. But here is the main thing you need to know – you can start one for $250.00 or less with follow up investments in some cases as low as $10 per purchase.

In my DRIP account I currently have three stocks, Hasbro Corp (HAS), CenturyLink (CTL), and JM Smucker (SJM).

Transferring Stock
When I opened the HAS account I bought shares through an on-line brokerage house and transferred one share from the brokerage to the DRIP plan administrator, Computershare.

As I write this, HAS closed the trading day at a price of $43.05 & CLT closed at $36.47. On-line brokerage houses have different commission schedules ranging from as low as $4.00 per trade to as high as $20.00 per trade. Worst case – you could today open a Hasbro DRIP for $63.05 ($43.05 stock price + $20.00 commission) and a CenturyLink DRIP for $56.47 ($36.47 stock price + $20.00 commission).

Transferring the stock from the brokerage to Computershare must be done by the brokerage house. In my case, I wrote a letter to my brokerage, USAA Brokerage Services, instructing them to send one share of HAS to Computershare. In the letter I provided my brokerage account number, my home address, the number of shares to transfer, and the address and phone number of Computershare.

After about a week the transaction was complete. One share of HAS appeared in my new DRIP account at Computershare.

One thing surprised me the first time thru this process. Computershare did ALL of the account set up after receiving the stock certificate from USAA. They wouldn’t do any preliminary set up although I asked them to.

Direct Buy
When I set up the account for JM Smucker (SJM) I made the initial purchase thru Computershare. Some companies that offer their shares thru DRIP account administrators allow direct purchase of the initial investment - but many don’t. For those that don’t you must set up the account by transferring at least one share as described above.

For SJM though, I set up a purchase using the Computershare web site for the minimum allowed initial investment of $250.00. When the transaction was processed (they process buy orders once a month) the price of SJM was $54.904952 and they charged a transaction fee of $11.93. This netted me 4.336039 shares of SJM.

Yes, they sell fractional shares & yes, they priced the shares to six decimal places.

The actual fee schedules are complicated and they’re different for every company. You’re actually buying shares of the company from the company. In my case I bought 4.336039 shares of JM Smucker (SJM) directly from JM Smucker. Computershare merely facilitated the transaction and now holds the shares on my behalf.

Because you buy directly from the share-issuing company, each company sets their own rules for how the transaction is handled and how much it costs.

In my next post I’ll review follow up investments. In the cases of HAS, CTL, and SJM the minimum follow up investment is $25.00.

The Main Thing
At Computershare the minimum follow up ranges from $10.00 to $100.00 per transaction. But you can already see that a Hasbro DRIP account can be started for $60 to $70 or less (depending on the current price per share & your specific brokerage commission). And, follow up investments in HAS can be as little as $25.00.

Get Rich Slowly
$25 per month doesn’t sound like much, but over 30 or more years of stock price appreciation combined with compounded reinvested dividends – you can get rich slowly.

Link to Topics in the Special Report - How to Get Rich Slowly DRIP by DRIP

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