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$40,000
$41,161
$10,000 1 6 11 16
Year
21
26
As you can see, a savings account that compounds your interest is better than one that doesnt, but a company that grows its dividend while you reinvest yours is even betterand not just a little better. A whopping 132 times better. Instead of retiring with a lousy $40,000, youd be sitting on $5.4 million. Now, finding a company that grows its dividend 10% every year for 30 years is not an easy feat, but thats our job. Reinvesting your dividends is yours. We arent going to just leave it like that. We want to make it even easier on you. Thats why we look for a special type of plan that helps you. Let me explain 1
Over Please
A dividend reinvestment plan (DRIP) is simply a way for a shareholder to reinvest their dividends back into the company without paying commission fees. The company, or a third-party transfer agent, takes care of all the transactions. You dont even have to leave your couch. Basically, the company realizes its in both your and their best interest for you to reinvest your dividends back into the company. It helps the companys share price, as well as gives the company stability to continue to grow its dividend.
$1,000,000
11
16
Year
21
26
As you can see, DRIPs are powerful tools for income investors. But it gets even better. Say you want to pay some of your bills with the dividends. No problemMany companies also allow partial reinvestment through DRIPs. So you can decide to receive a check for 30% or 40% of the dividends and put the rest back into the companys stock. Theres more to DRIPs than just that. Some have direct stock purchase plans (DSPPs). These allow you to buy shares directly from the company once again, bypassing brokers and their nasty commission fees. Many companies that offer DSPPs also offer optional cash purchases (OCPs). Some even offer a discount for this option. That means you can buy shares of certain companies through their DSPPs for anywhere between 110% off. Thats like buying shares on sale, and its usually on a set schedule, so its an extremely cheap and easy way to invest for retirement. While the acronyms may get a little confusing, dont worry. When we come across a company that offers any of these plans, well make sure you know your options. Not all companies offer these perks, but the list is growing. Its, obviously, a win-win. The extra buying helps increase the value for the company, as well as the shareholder. Of course, nothing is exactly that easy To get enrolled into a DRIP, you have to be a shareholder in the first place. For most companies, it takes only one share to enroll. But it does get slightly more complicated than that. You have to be the physical shareholder. Most brokers hold their clients shares, which ordinarily makes it easier on everyone. But in this case, you need to actually send your shares into the company offering the DRIP, or their transfer agent. There are a number of ways you can get hold of a stock certificate for a single share. If you want to enroll in a DRIP from a company that offers a DSPP, you are in luck. Obviously, with a DSPP, you can buy a single share directly from the company. You can find out if a company offers a DSPP on its investor page or in its DRIP prospectus. Well tell you when one of our recommendations offers such a plan. The second choice would be to buy a single share from a broker. It isnt the cheapest way to go about it, but itll work. You can use any typical discount firm such as those listed in Income You Can Count On. After you buy a single share of the company, you have to have the broker send you a stock certificate. You will be charged somewhere around $2550 for that. It will also take a few weeks to receive the certificate. Another option to get your first share of a company is to use First Share. First Share is an organization 2
based around DRIP investing. It is basically a group of investors who own shares of companies that offer DRIPs. The investors in this group agree to sell a single share of stock to other members. So youd have to become a member. Once you are a member, you are obligated to sell one share of each stock you purchase through First Share to another member. It costs $4 for a referral (from a buyer to a seller) and a $7.50 transaction fee (from a buyer to a seller). But you get the transaction fee recouped once you become a seller, as you are obligated to do. You can contact First Share at (800) 683-0743 or visit the Web site at www.firstshare.com to read the prospectus. Its important to remember that all DRIPs are different. Reinvesting Wal-Mart shares is very different from reinvesting McDonalds shares. Heres a short list of just a few of the more than 1,000 companies that offer DRIPs. This list isnt complete, and we arent recommending these companies. But a good way to familiarize yourself with DRIPs and the differences between them is to glance through a few of these companies prospectuses. You can find them on the companies investor relations pages.
Key terms:
Dividend Reinvestment Plan (DRIP) Plan that automatically reinvests dividends you receive from a company back into the companys shares. Direct Stock Purchase Plan (DSPP) Plan that lets you buy shares directly through the company. Optional Cash Purchase (OCP) Option that lets you add more shares to your DRIP without using a broker. This option is usually on a set schedule and makes retirement investing automatic.
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