How to Enroll in Direct Investment Plans (DRIPs)
In order to qualify to join a plan, in general, all that’s necessary is that you are the owner “of record” of at least a single share of the company’s stock.
Becoming enrolled in a DRIP is a one-time event. The enrollment process can be accomplished in several ways. By far the easiest way to become enrolled is with the enrollment service offered by Temper of the Times Investor Services, Inc (TES).*
TES accepts orders for up to 18 companies on any one order form. The enrollment service will then acquire the share or shares required by each of the companies and get those shares registered in your name. Then it will deal with the transfer agent for each company. Once an account is open for every company you ordered, it will send you a statement to reflect your cost for the share(s).
Two ways to join a plan
Every company that offers a plan will open an account for an existing shareholder. In addition, some companies will accept investments directly from members of the public even though the individual is not already a shareholder. Those companies are described as direct enrollment companies (DE). Unfortunately, in general, these direct enrollment companies charge fees for enrollment and also charge fees for each investment through the plan.
If the company you have decided upon offers DE, you can make your first investment through the transfer agent for the company. However, that option may not be best for you. It might be better to enter the plan as a shareholder.
Why would you prefer to enroll as a shareholder?
For one thing, the required initial investment amount as a shareholder is usually only a single share, while the DE companies require a much larger investment. In addition, it will be your responsibility to deal with the transfer agent for each company and handle all the details until the account is open. What’s more, the transfer agents almost always charge a fee for that service.(And keep in mind that DE companies are likely to charge transaction fees.)
The bottom line: To enroll in a plan through DE will likely require an initial investment of $250-$1,000, whereas, your initial investment could be as little as the cost of a single share. In addition, by choosing direct enrollment through the transfer agent, you will have to handle the enrollment process on your own with the transfer agent of each company and you are likely to be subject to ongoing transaction fees.
If You Already Own Shares Held by Your Broker
Perhaps you are already a shareholder of a company and that company has a DRIP. If your shares are registered in "street name" (held in a brokerage account), the company will not recognize you as a shareholder so you can not qualify to join the plan. In that case, you can ask your broker to get the share(s) reissued in your name. This usually means asking for a certificate. Once you have a certificate, you can contact the transfer agent to request a DRIP enrollment form. Generally, you can make your first optional cash investment when you return the form. Companies that offer safekeeping will allow you to deposit the certificate share(s) into your account, but may charge a fee to do so. Instead, you may find it easier to use the enrollment service, which will buy a single share in your name, deal with the transfer agent to get your account open, and deposit the share into your account.
If You are Not Already a Shareholder
Then you must acquire the number of shares necessary to enter the DRIP as a shareholder or pay a larger initial investment amount and enroll through the transfer agent (if available).
How many shares are required to join a plan?
The number of shares required to enter as a shareholder is provided under "Search for DRIP." at this site. Most plans require only one share, but some require up to 100 shares.
The Easiest Way to Become Enrolled
The enrollment service offered by Temper of the Times Investor Services, Inc., a registered broker/dealer, is the most efficient way to become enrolled. Traditional brokerages hold shares in street name and attribute the shares to their clients in their records. A traditional broker will charge a fee—as high as $75—to issue a certificate in the client’s name. So buying a share, (or receiving one if you already own the stock), even at a deep discount broker, is likely to be less efficient, more costly and more time consuming than using the enrollment service.
Investing Fees
Once you are enrolled in a DRIP, you will be subject to the provisions of the plan, which are set by the specific company. Most plans that require shareholder status to qualify, don’t charge fees for investing or reinvesting. Most plans that allow direct enrollment through the transfer agent (DE) do charge fees for investing and reinvesting, as you will discover when you "Search for DRIP" companies.
In Summary:
Most DRIPs require shareholder status and don’t charge fees (3M, Abbott Labs, AFLAC, Avon, Baker Hughes, ConocoPhillips, Duke Energy to name a few). Some plans allow direct enrollment (DE) through the transfer agent. These transfer agent enrollment plans generally charge ongoing investing fees (Disney, Ford, IBM, and McDonald’s for example).
*The Temper Enrollment Service is provided by Temper of the Times Investor Services, Inc., ("Temper") a registered broker dealer, member NASD, SIPC. Temper does not make investment recommendations, nor does it make a market in any securities. The Moneypaper, Inc. is the publisher of The Moneypaper, Direct Investing, and The Guide to Direct Investment Plans. The Moneypaper and Temper are affiliated companies.