Dollars From Drips

You don’t need to have lots of money to invest in the stock market. You can invest small sums such as $25 or $50 via direct investment plans or dividend reinvestment plans (DRIPs). DRIPs let you buy shares of a company’s stock directly, bypassing brokers (and broker commissions!), and hundreds of major corporations offer these plans. With traditional DRIPs, you must own at least one share of a company’s stock before you enroll, registered in your own name (and not your broker’s, as is commonly done). If you’re not already a shareholder, you’ll have to buy at least one share through a broker, paying the commission and specifying that you want the share(s) registered in your name. Then you can open a DRIP account with the company and start investing. 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) operate similarly, but you can buy your very first shares through them and needn’t own any shares before enrolling. Alternatively, you may be able to have your brokerage automatically reinvest all your dividends. These plans let you “dollar-cost average,” building a position in a stock by investing a fixed amount of money at regular intervals. When the price is low, you’ll get more shares, and you’ll buy fewer shares when the price is high. (Be sure to keep detailed records of your purchases, for tax time.) Some plans even let you buy stock at a small discount to the prevailing price. Explore the websites of companies you’re interested in, to see whether they offer these plans. Another option is to skip dividend reinvestment plans, let dollars from dividends accumulate in your brokerage account, and then spend them on new shares of stock as you’re able. Learn more at directinvesting.com and in “The Little Book of Big Dividends” by Charles Carlson (Wiley, $25). For many dividend-paying stocks we recommend, try our “Motley Fool Income Investor” newsletter for free via fool.com/services.