DRIP stocks are stocks that pay dividends and allow you to reinvest those dividends to buy more shares of the same stock. DRIP stands for dividend reinvestment plan, and it is a popular strategy for long-term investors who want to grow their wealth and income over time.
But how do you buy DRIP stocks? Here are some steps you can follow to start investing in DRIP stocks today.
Find a company that offers a DRIP. Not all dividend-paying companies have a DRIP program, so you need to do some research to find out which ones do. You can use online tools like DRIPInvesting.org or DRIPAdvice.com to search for DRIP stocks by name, industry, yield, or other criteria.
Open an account with the company or a brokerage. Some companies allow you to buy shares directly from them through a direct stock purchase plan (DSPP), which may offer lower fees and discounts on the share price. You can find out if a company has a DSPP on its website or by contacting its investor relations department. Alternatively, you can buy shares through a brokerage that offers DRIPs, such as Schwab, Fidelity, or TD Ameritrade. You may have to pay commissions or fees for buying and selling shares through a brokerage, but you may also have access to more investment options and services.
Enroll in the DRIP program. Once you have bought some shares of a DRIP stock, you need to enroll in the DRIP program to start reinvesting your dividends. If you bought shares directly from the company, you can enroll online or by mail using the forms provided by the company. If you bought shares through a brokerage, you can enroll online or by phone using the brokerage’s platform. You may have to specify whether you want to reinvest all or a portion of your dividends, and whether you want to buy fractional shares or round up to the nearest whole share.
Monitor your investment and adjust as needed. After enrolling in the DRIP program, you will receive regular statements from the company or the brokerage showing your share balance, dividend payments, and reinvestment transactions. You should review these statements carefully and keep track of your cost basis and capital gains for tax purposes. You should also evaluate your investment performance and goals periodically and decide whether you want to add more money, sell some shares, or diversify your portfolio with other investments.
Buying DRIP stocks can be a simple and effective way to build wealth and income over time. By reinvesting your dividends, you can take advantage of dollar-cost averaging, compound returns, and potential discounts on share purchases. However, you should also be aware of the risks and costs involved in DRIP investing, such as market volatility, tax implications, and fees. As always, do your own research and consult a financial professional before making any investment decisions.