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How to buy stocks really, really cheap through DRIPs

moneylogo_optBY WARREN BOROSON
NEWJERSEYNEWSROOM.COM
BOROSON ON MONEY

If someone can't quite get himself or herself to do something so daring as to invest in the stock market, there's a wonderful solution.

DRIPs. Dividend reinvestment plans. Companies that allow you to buy their dividend-paying stocks directly, bypassing a stockbroker.

DRIPs allow people to invest in stocks with a mere $10 or $25 or $50 at a time. And with no commissions. So, even if you're as poor as a proverbial church mouse, you can afford to get your feet wet. (Block that metaphor!)

Another benefit of DRIPs: You can dollar-cost-average all you want. You can invest small sums of money every day — every week, every month, every six months — whatever. Of course, your dividends are automatically invested in new shares.

There are at least two benefits to DCA (remember, that stands for dollar-cost averaging):
  1. You don't put a ton of money into the stock market just before it heads south and decides to hang out there for a long spell;
  2. You buy more shares when the stocks are relatively low priced, fewer shares when stocks are relatively high priced.

A third benefit: Stocks that pay generous dividends have done quite well over the years. (Until recently, that is, when financial stocks – which generally pay high dividends – got taken out and shot.) A huge percentage of the gains people make in the stock market have come from dividends. (The official percentage seems to bob up and down, but I've heard figures as high as 40 percent.)

nelsonvita031510_optYou would think that impoverished young people would be the main buyers of DRIPs, and it may be true. But Vita Nelson, who runs Moneypaper, tells me that many stockbrokers own DRIPs, and so do professors of finance. (Moneypaper is a monthly publication all about DRIPs and DRIP investing. A subscription costs $153 a year, but new subscribers can pay $97.)

DRIPs also make neat gifts for parents or grandparents to give their offspring, but – alas! – Disney stock isn't available unless you buy at least five shares. Some 1,000 stocks are available, including Coca-Cola and Microsoft.

If you're going to go the DRIP way, you might consider focusing on New Jersey stocks. Reason one: You're likely to know more about such stocks-from your friends who have worked there, from local newspapers. Reason two: People seem to like to invest in local companies. Besides, New Jersey has plenty of blue-chip stocks offering DRIPs. (See the end of this article.)

DRIPs are not peas in a pod. Some come with a fee, most don't. Some let you buy stocks at a discount. Some have limits on how often and how much you can invest.

moneypaper031510_optTo find out the terms of a stock's drip, go to directinvesting.com, which is run by Moneypaper.

Let's look at one DRIP-that of Johnson & Johnson, a blue-chip New Jersey company headquartered in New Brunswick. I'm featuring JNJ because, among other reasons, I own shares, and if you buy in, you'll help drive up the price.

You can buy one share of JNJ through an affiliate of Moneypaper called Temper Enrollment Service. Minimum investment: $25. The most you can invest in one year: $50,000. You need one share to buy more shares. There's a fee for investing, but JNJ pays it for you. Recent yield: over 3 percent. You can sell your shares every day — for $15 plus 12 cents a share.

There are two things you must do to become enrolled in a DRIP.

1. You must first own at least a single share of the company stock (in some cases, it's more than one share). That share must be registered in your name (and not in "street name," which is the broker's name).

2. You must contact the transfer agent to open an account with that company. Temper charges a one-time service fee of $50 ($25 if you are a Moneypaper subscriber) to do this for you. These charges apply each time you enroll in a company plan. Of course, you must also pay for the cost of the shares.

Nelson says that the problem is that, by using these plans, no one gains but the investor. "That means that they are not advertised and are, therefore, relatively unknown."

Moneypaper, which has been touting the virtues of DRIPs since 1981, came up with another good idea: a mutual fund of DRIPs. No-load, minimum first investment of $1,000. Name: mp63. Yes, there are 63 DRIP stocks in the portfolio, which is diversified according to industry. Its recent yield was 2 percent; assets, a modest $37.7 million; Morningstar gives it four stars, for above average.

Guess what its stock symbol is.

Someone must have told you. DRIPX.
Nelson crows that the average investor in MP63 is so sophisticated that during the 2001 crash, none of them sold out.

To learn more about the mp63 fund, click here.

To learn more about Moneypaper, go to directinvesting.com or phone (800) 388-9993.

New Jersey-based companies that offer dividend investment plans:

  • ASA Limited (ASA)
  • Bancroft Fund Ltd. (BCV)
  • Becton Dickinson & Co. (BDX)
  • C.R. Bard Inc. (BCR)
  • Campbell Soup Co. (CPB)
  • Center Bancorp, Inc. (CNBC)
  • Chubb Corp. (CB)
  • Church & Dwight (CHD)
  • Curtiss-Wright Corp. (CW)
  • Ellsworth Fund Inc. (ECF)
  • Great Atlantic & Pacific Tea Co., Inc. (GAP)
  • Honeywell International Inc. (HON)
  • Hudson City Bancorp Inc. (HCBK)
  • Japan Equity Fund (JEQ)
  • Johnson & Johnson (JNJ)
  • Kearny Financial Corp. (KRNY)
  • Lakeland Bancorp Inc. (LBAI)
  • Liz Claiborne, Inc. (LIZ)
  • Mack-Cali Realty Corp. (CLI)
  • Merck & Company, Inc. (MRK)
  • Middlesex Water Company (MSEX)
  • Monmouth REIT (MNRTA)
  • New Jersey Resources Corp. (NJR)
  • OceanFirst Financial Corp. (OCFC)
  • Peapack Gladstone Financial Corp. (PGC)
  • Public Service Enterprise Group (PEG)
  • Sealed Air Corp. (SEE)
  • Selective Insurance Group, Inc. (SIGI)
  • Singapore Fund (SGF)
  • South Jersey Industries, Inc. (SJI)
  • Sussex Bancorp (SBBX)
  • Transamerica Income Shares     (TAI)
  • UMH Properties Inc. (UMH)
  • Unity Bancorp, Inc. (UNTY)
  • Valley National Bancorp (VLY)
  • Verizon Communications Inc. (VZ)

 

 
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