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Jordan Goodman is the author of Everyone's Money Book, available at 888-201-6300. This is the third edition of the book. You can also visit his Web site at www.moneyanswers.com. He talks with us on Thursday mornings.

November 21, 2002

"Discount Dividend Reinvestment Plans (DRIPs)"

People say there is never a free lunch, but I’ve found something that is pretty close. There are currently 112 publicly traded companies that offer a discount on reinvested dividends if you enroll in their dividend reinvestment plan, commonly known as a "DRIP."

Here is how it works: You enroll in a company’s DRIP, either directly with the company or through an enrollment service like www.directinvesting.com.

Each company sets its own minimum initial investment, but it is usually $100 or less -- and in some cases, there is no minimum. You elect to have all dividends paid reinvested in the stock of the company. So far, this is what happens with about 1,300 companies offering regular DRIP plans.

For the 112 companies offering a discount, it gets better. In addition to reinvesting the dividend, the company adds an amount from 1% to 5% on top of the dividend. So, for example, if you reinvest $100 in dividends and get a 5% discount, you will reinvest $105 worth of stock. This money compounds, of course, so in the next quarter, you get 5% on $105, or $105.50. Usually, the company does not charge for this service.

Why do companies pay out this free money? Because they want to encourage shareholder loyalty and raise capital in a cheap and efficient way. And it works, because shareholders tend to stick around for years once enrolled in a DRIP plan.

What kinds of companies offer these plans? Most of the companies are well-established firms that pay substantial dividends. The biggest concentration by industry is banking and real estate investment trusts.
    Here is a list of just a small sample of the companies offering Discount DRIPS, and the amount of their discount:
  • Health Care REIT, 4% (real estate investment trust)
  • Media General, 5% (newspapers and TV stations)
  • Philadelphia Suburban, 5% (natural gas distributor)
  • Sea Containers, 3% (shipping)
  • Southwest Water, 5% (water utility)
To help Marketplace listeners get a complete list of all the companies offering discount DRIPs, I have arranged with the Moneypaper, which keeps the list, to provide a free log-on trial. Log on to www.guidetodrips.com, click on "Trial Subscription," and type "Goodman" in the subscription ID to get your own user ID and password. You will see a list of all the companies and how to enroll. You can also contact Moneypaper at 800-388-9993,
or, 555 Theodore Fremd Avenue
Rye, New York 10580.

When does a Discount DRIP make sense for you? Only if you like the company that you are investing in. The Discount is the cherry on the cake -- but you have to love the cake first.

For More Financial Tips From Jordan Goodman


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