Watch That DRIP!
Dividend Reinvestment Plans, or DRIPs, are a great way to build wealth. They allow you to use the quarterly payments to acquire more shares in a company, and odd amounts are no problem since the plans buy fractional shares. But before you buy, be sure to look at the details. Of the roughly 1,100 DRIPs, approximately half of them charge fees to invest the dividend, and they can be deceptively steep.
The biggest offenders are direct purchase plans, a type of DRIP that lets you invest in a company even if you don't already own any shares. Most charge 1% to 5% of the value of the investment, and sometimes a per-share fee to cover brokerage costs. IBM's direct purchase plan levies 2%, up to a maximum of $3. Campbell Soup and FedEx both add on a 5% reinvestment fee, up to $3 - plus commissions. That can add up, especially on small accounts.
Fees up to 2% are acceptable, but if you already own stock in a high-fee plan, you would be better advised to take the cash and divert it into another DRIP with lower, or better yet, no fees. Spending $5 to invest $100 in dividends is no way to get rich!
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The biggest offenders are direct purchase plans, a type of DRIP that lets you invest in a company even if you don't already own any shares. Most charge 1% to 5% of the value of the investment, and sometimes a per-share fee to cover brokerage costs. IBM's direct purchase plan levies 2%, up to a maximum of $3. Campbell Soup and FedEx both add on a 5% reinvestment fee, up to $3 - plus commissions. That can add up, especially on small accounts.
Fees up to 2% are acceptable, but if you already own stock in a high-fee plan, you would be better advised to take the cash and divert it into another DRIP with lower, or better yet, no fees. Spending $5 to invest $100 in dividends is no way to get rich!
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posted by Bob Moser at
6:21 PM
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