Small Drips, Big Profits

Posted: February 25, 2013

THOSE WITH ONLY a few dollars to invest at a time are not out of luck with the stock market. Dividend-reinvestment plans (DRIPs) can help you invest sums such as $20 or $50.

DRIPs let you buy shares of a company's stock directly from it, bypassing brokers (and broker commissions). Hundreds of major corporations offer DRIPs.

With traditional DRIPs, you must own at least one share of a company's stock before you enroll in your own name. So if you're not already a shareholder, you'll have to buy at least one share through a broker, paying the commission.

Be sure to specify that you want the share(s) registered in your name, not the brokerage's name as is typically done. Then you can open a DRIP account with the company and buy additional shares directly. If you already own shares, you may have to pay your brokerage a fee to switch the registration from its name to yours.

Direct-stock-purchase plans (DSPs), a newer kind of DRIP, operate similarly, but you needn't own any shares before enrolling. You can buy your very first shares through them.

DRIPs and DSPs let you "dollar-cost average," building a position in a stock by regularly investing in it. They'll even purchase partial shares for you.

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