Invest today with DRIP stock

You need money to make money, the old saying goes. In reality you could start investing in stocks with as little as $10 a month. True, most stock brokers charge more than that just to complete a transaction, but there is another way: DRIPs.

A DRIP (or DRP) is a Dividend Reinvestment Plan, which is a way to buy stock directly from a company. DRIPs have great advantages:

• Once you have started, you can invest for as little as $10 to $50 a month.
• The company buys shares for you automatically, which a) forces you to invest a little every month and b) means you end up buying less stock when the price is high and more when the price is low (aka dollar-cost averaging).
• Any dividends the company gives out are also automatically used to buy more stock (this is how DRIPs get their name).
• Transaction fees are quite low and in many cases nonexistent.

Of course, DRIPs have a couple of downsides -- they do not offer the diversity that some other investment vehicles, such as mutual funds, have and they can be a pain come tax time.. However, if you want to buy directly from a handful of specific stocks, DRIPs are an affordable way to do so.

Not all companies offer DRIPs, but your options are still quite broad. Thousand of companies have DRIPS (including nearly half of the Fortune 500 companies).

Getting Started

You have to invest in a minimum amount (this is often the price of one share, but it can also be a set price like $100 or $250). Many companies let you buy the one share from them, through a program called a Direct Stock Plan (DSP) or Direct Investment Plan. If you want to have a DRIP with a company that does not sell stock directly, then you can go through a discount broker or through an investing network like First Share or Temper of the Times.

Join the discussion on the pros and cons of DRIPS.

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