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Featured Investing Book: Becoming An Investor
The Motley Fool's Investing Without A Silver Spoon

The Motley Fool's Investing Without A Silver Spoon

How Anyone Can Build Wealth Through Direct Investing

By Jeff Fisher

The Motley Fool's Investing Without A Silver Spoon is divided into two parts. The first section is a 95-page introduction to stock market investing and, in particular, investing in direct stock purchase plans offered through individual companies.

The second section of The Motley Fool's Investing Without A Silver Spoon, and, the bulk of the book, gives contact information about companies offering direct investment plans. This data is provided by moneypaper.com.

The Motley Fool's Investing Without A Silver Spoon points out that most company's dividend reinvestment plans (DRP's) require potential participants to already own stock in the company. Fewer companies offer direct stock purchase plans (DSP's), where the first share can be directly bought from the company.

Fisher says that one advantage to investing via dividend reinvestment plans and direct stock purchase plans is that you can buy very small amounts of stock on a regular basis, allowing you to benefit from dollar cost averaging. Further, investors can get started with their investing earlier, even if they have limited funds, because such plans often have a very modest initial investment. This allows investors to benefit from the power of compounding by getting started earlier in building a portfolio.

Plus, Fisher notes that you can also cut commission costs, because many companies don't charge commissions for optional purchases and reinvestment of dividends when you buy stock directly from the company. However, Fisher cautions that investors examine the company's plan to learn about the various fees and commissions that might exist. The basic fee data for companies with DRP's and DSP's is included in Part II of The Motley Fool's Investing Without A Silver Spoon.

For example, Merck is an outstanding company and a great long-term holding. Yet, Merck has a relatively undesirable fee structure for its dividend reinvestment plan. Pfizer, another pharmaceutical company offers a better dividend reinvestment fee structure for investors.

Fisher advises investors to select companies with a long-term view. Choose quality companies in solid industries. Selling shares through a dividend reinvestment plan is often a hassle, so such plans are best for long-term, buy-and-hold investors. Further, if you can afford a larger initial investment, many brokerage firms will allow you to reinvest dividends free of charge or commissions. This usually applies even to companies which don't have their own dividend reinvestment plans.

Motley Fool readers (fool.com) say they tend to favor etrade.com and suretrade.com for buying their first share because of the low fees of these brokers. To begin a dividend reinvestment plan, your first share owned will need to be transferred from "street name" (the way most stocks at most brokerages are held) into your own name. Then, the share (or shares) will be sent to you. Some brokers charge quite a bit to transfer a share into your name.

As I glanced through Part II of The Motley Fool's Investing Without A Silver Spoon some companies which caught my attention included:

  • Abbott Labs
  • Bausch & Lomb
  • Coca Cola
  • Colgate Palmolive
  • EG & G
  • Exxon
  • GE
  • Goodrich
  • Johnson & Johnson
  • Kimberly Clark
  • Lubrizol
  • Medtronic
  • 3M
  • Mobil
  • Paychex
  • Pennzoil Quaker
  • Pepsi Co.
  • Philip Morris
  • Schering-Plough
  • Texaco
  • UST Inc.

The above companies are well-know companies with no reinvestment fees for dividends. Obviously, you could build a quality, core portfolio with companies of such quality.

While you could also buy shares in smaller companies through dividend reinvestment plans and direct stock purchase plans, I'd probably avoid doing so. Avoid the Over The Counter (OTC) stocks in general. More can go seriously wrong with a smaller company, inducing investors to sell. And, remember, selling shares from a DRP or DSP is a hassle.

Even if you buy shares directly from dividend reinvestment plans for some companies, for other companies you will probably still choose to use a broker, either because of high reinvestment fees offered through the company plan (Merck is one example) or else because you aren't as certain you won't want to sell the stock in the future.

Because the first section of The Motley Fool's Investing Without A Silver Spoon reads quickly and because once you establish a core portfolio of companies you wish to purchase via dividend reinvestment plans, you will have little use for the reference of Part II, I'd suggest getting a copy of The Motley Fool's Investing Without A Silver Spoon from your local public library.

The Motley Fool's Investing Without A Silver Spoon
The Motley Fool's Investing Without A Silver Spoon

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