Friday, March 27, 2009

Types of DRIPS


Company-run: Many companies run their own DRIPs. These are often the companies that allow you to buy directly through them without requiring you to first own a single share. The company-run DRIPs are bought from corporate headquarters.

Transfer agent-run: As managing DRIPs can be time consuming, most companies have third parties do their dirty work, called "transfer agents." Transfer agents are financial institutions that run DRIP programs for many companies. Because they can use the same resources for a number of customers, transfer agents can often provide DRIP management services at a lower cost than the company could offer by itself. Some of the larger transfer agents include Boston EquiServe, L.P., First Chicago Trust, and Chase Mellon.

Brokerage-run: Some brokerages will allow shareholders to reinvest dividends at no cost, even if the company in question does not have a formal DRIP itself. However, these brokerage-run "simulated" plans apply to dividends only and do not permit optional cash purchases as most company, sponsored DRP plans do, and optional cash purchases are a large part of what makes DRIP plans so attractive.

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