Myles of Investments

Read about my successes and failures. Learn from my experiences and gain insight without losing any cash!!!

Lesson: Catching a Falling Knife
Lesson: Currency Exchange
Lesson: Mutual Fund
Lesson: Paid to Wait
Lesson: Pricing in a Downturn

This is where you’ll find find my Blog. I will comment on the latest news relating to investing, real estate, and the financial markets.

DRIP Your Way to Gains

The DRIP is a great tool and can allow you to continually reinvest in a single company without brokerage fees. A DRIP is a Dividend Reinvestment Program, that some companies offer to holders of public shares. A DRIP works by taking the dividend that a company would be required to pay you, and using this money to immediately buy shares to add to your total. Another added feature of a DRIP is that many companies will allow you to purchase fractional shares, so even if the dividend you recieve doesn’t allow you to purchase an entire share, you are still able to invest in the company with no brokerage fees. For example, if you receive a $4 dividend and the share price is $8, many companies will add half of a share to your portfolio.

This is good for many reasons, first, each time the company issues a dividend, you’ll own more of the company, so the next time they issue a dividend it will be even higher, as the number if shares you own has increased. This earns you more and more money, because your share total is increasing even if the dividend is not. I personally liked that every statement I received, my share total was growing and as a result, my dividend payment was increasing.

The drawback to the process can be the legwork that is required up front, to enroll in the plan. Typically this can take some time, as you need to send in paperwork and certified money orders to a discount broker that the company has chosen. This program is ideal for long-term investment, because you will not be able to achieve an immediate trade, where you can lock in a set price. Ideally, you should send in a request when you think there is a significant margin of safety in the price. This is also true for liquidating your position in the stock, it may take a few days or a week, and as a result, you will not have instant access to your money.

DRIPs are a great investment solution for investors who are small or starting out, and don’t have a lot of money, but who like the company enough to be buying into it over the long term. If you were to invest through a normal broker, you would neither be able to purchase fractional shares every quarter, nor get this service for free! If you think you have found a winning company that will increase its value over time, and you want to start building a stake in it automatically, look into a DRIP.

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