Direct purchase stock
In recent years, direct stock purchase plans DSPPs have lost much of their appeal -- likely due to the availability of online brokerages. This has been even more pronounced given the preference of the investment public to invest primarily in funds, particularly exchange-traded funds ETFs. But DSPPs may still have a place for investors who prefer to invest in a portfolio of high-quality individual stocks. If you plan to hold those stocks for many years, DSPPs are a solid choice, not only for holding your stocks, but also for taking advantage of automatic dividend reinvestment to increase your holdings. A direct stock purchase plan allows you to purchase and hold shares directly with the company in which you're investing.
Direct Stock Purchase Plan (DSPP)
While many investors choose to buy and sell investments through a brokerage account , some investors may wonder how they can buy stocks without a broker. Direct investment plans offer the brokerage alternative that those investors are seeking. If your primary investing goal is to acquire a single company's stock as directly as possible, one of these plans can help you achieve that goal, but be aware of the drawbacks that come with avoiding brokerage services before you abandon them completely.
Often, the easiest method of buying stocks without a broker is by participating in a company's direct stock plan DSP. These plans were originally conceived generations ago as a way for businesses to let smaller investors buy ownership directly from the company.
Investors buy-in by transferring money from their checking or savings account. The company will establish minimum investment amounts, both for the initial purchase and for any subsequent purchases. The plan administrators batch the cash from those participating in the direct stock plan and use it to buy shares of the company at regular intervals and at the average market price.
Companies may also offer a dividend reinvestment plan DRIP. These are similar to direct stock plans, except that they automate the process of buying more stock over the years. DRIPs automatically take cash dividends paid out by the company you own and use them to buy more shares. Depending on the specifics of the plan, this service may be free or there may be small commission fees. In the U. If you are fortunate enough to have such an arrangement, DRIPs don't have as much appeal.
Dividend reinvestment plans are often coupled with cash investment options that resemble direct stock purchase plans. This gives you the ability to buy more stock whenever you want, not just the four times a year dividends are issued. The primary advantage of avoiding brokers and buying directly from a company is simplicity. Apps and websites have significantly streamlined the broker experience, but an investor still has to choose between securities and make decisions about the type of order to place for those investments.
Direct stock purchases and dividend reinvestment plans can be even more simple—just send the money to the right place and you're enrolled in the plan. Direct stock plans also allow for enhanced communication between the company and its investors. When you invest through a brokerage, any notices from the company will come through the brokerage. For investors with a variety of investments, company notices blend together because they all appear in your inbox as a message from your brokerage, rather than the company.
This could lead to some investors skipping messages altogether, potentially missing out on useful information. By communicating directly, the company and its investors remain in better contact. Institutional investors may have access to extra benefits through direct stock purchase plans, depending on the company issuing the stock. Special "waiver discounts" allow institutional investors to buy shares at a discount that isn't broadly advertised.
The simplicity that direct plan investors enjoy is also the main disadvantage of broker alternatives. If you sign up for a Home Depot direct stock purchase plan, for example, you will only have the option to buy Home Depot stock. An investor with a brokerage account and an investor with a direct stock plan could acquire the same Home Depot stock at the same price, but the investor with the brokerage account could also acquire any other security the brokerage services.
For traders who want to diversify and explore their options, there's no substitute for using a broker. Traditionally, direct plans have also enjoyed the benefit of commission-free, or low-commission trades, especially when compared to the costs of using a full-service broker. However, that benefit has largely vanished in the digital era.
Many brokerages—even major firms like Fidelity and Charles Schwab—have dropped their commission fees for online trades. Direct stock plans also impede an investor's ability to time trades. Cashing out your position isn't as simple as tapping a few buttons on a brokerage app.
This is fine for buy-and-hold investors who plan on holding stocks for decades. Investors who mostly care about dividends will also likely feel content with direct plans. Investors who trade often and enjoy regularly rebalancing their portfolio, on the other hand, will be frustrated by the limitations.
The Balance does not provide tax, investment, or financial services and advice. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. The Home Depot. Shareholder Service Solutions. Why Not?
Charles Schwab. Fidelity Investments. Investing for Beginners Stocks. By Full Bio Follow Twitter. Joshua Kennon co-authored "The Complete Idiot's Guide to Investing, 3rd Edition" and runs his own asset management firm for the affluent.
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A Direct Stock Purchase Plan (DSPP) is an investment service that allows investors to purchase stock directly from a company or, more commonly. A direct stock purchase plan allows you to buy shares of a company through its transfer agent instead of through a broker. In essence, you cut out the middleman.
Back before the early days of online stock investing you had to pay significant trading or management fees to full service brokers if you wanted to purchase stock. And mutual funds, back in the day, had ridiculous expense ratios! In fact, just about any stock purchase — direct or broker — runs this same risk. No Fees?
A plan implemented by a corporation allowing purchase of shares, or fractions of shares, directly from the company, usually on a regular basis.
Investing wth DSPPs is a low-cost way to invest directly with a publicly traded company. These plans are generally set up directly with the company or are administered through a third party transfer agent.
Direct Stock Purchase and Dividend Reinvestment Plan
It's designed for individual investors who might otherwise avoid making small, long-term stock purchases because of large minimum brokerage fees. You always have control of your shares. You may withdraw your DSPP holdings of Home Depot stock at any time, or may ask the program administrator to sell your shares. Purchasing Stock If you do not already own Home Depot stock, or if your stock is held through a brokerage account, you may use the plan to buy your first shares directly from the Company. If you already own Home Depot stock, you may invest cash dividends and optional cash purchases in additional shares of Company stock. Transaction Fees For each transaction, a small service charge is deducted from your investment plus the pro rata amount of brokerage commissions generally 5 cents per share for purchases and 15 cents per share for sales.
Direct Investment Plans: Buying Stock Directly from the Company
Some companies that offer DSPPs make the plans directly available to retail investors while others use transfer agents or other third-party administrators to handle these transactions. Such plans offer low fees and sometimes the ability to purchase shares at a discount. Not all companies offer DSPPs; and these plans may come with restrictions about when an individual may purchase shares. Such plans have lost some of their appeal over the last two decades as investing through online brokers has become less expensive and more convenient, though DSPPs still offer advantage for the long-term investor who doesn't have much money to get started. A DSPP allows individual investors to establish and account in which to make deposits for the purpose of purchasing shares directly from a given company. They investor makes a monthly deposit usually by ACH and the company applies that amount towards purchasing shares. Each month the plan purchase new stock shares, or fractions of them, based on money available from deposits or dividend payouts if any. This mechanism makes it easy and automatic to slowly accumulate shares from a given company. Because these plans often have very low fees and sometimes no fees , it makes DSPPs an inexpensive way for first-time investors to enter the financial markets.
While many investors choose to buy and sell investments through a brokerage account , some investors may wonder how they can buy stocks without a broker.
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Direct Stock Purchase Plans – Pros & Cons of Buying Stock Directly from the Company
Company Filings More Search Options. Many companies allow you to buy or sell shares directly through a direct stock plan DSP. You can also have the cash dividends you receive from the company automatically reinvested into more shares through a dividend reinvestment plan DRIP. Direct Stock Plans — Some companies allow you to purchase or sell stock directly through them without your having to use or pay commissions to a broker. But you may have to pay a fee for using the plan's services. Some companies require that you already own stock in the company or are employed by the company before you may participate in their direct stock plans. You may be able to buy stock by investing a specific dollar amount rather than having to pay for an entire share. In that case, you could have your checking account debited on a regular basis to make investments in the plan. Some plans require a minimum amount of investment or require you to maintain specific minimums in your account. DSPs usually will not allow you to buy or sell your securities at a specific market price or at a specific time. Rather, the company will purchase or sell shares for the plan at established times — for example, on a daily, weekly, or monthly basis — and at an average market price.
Direct Stock Purchase Plans (DSPPs) vs. Online Brokerages: Which Are Better?
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