One way to get more return from your investment dollars is to cut out the middleman. There are about 1,000 U.S. companies that sell their stock directly to shareholders with no commission. These are programs your broker will never tell you about.
Termed "dividend reinvestment and stock purchase plans" (DRIP for short), these plans enable shareholders not only to reinvest their dividends in additional shares automatically, but also to buy more stock in the company commission-free.
While some company plans set modest limits for the cash contribution, such as $1,000 a month, other companies have instituted very liberal contribution policies. American Home Products allows shareholders to invest more than $100,000 a year in the commission-free program. PepsiCo, Warner-Lambert, Coke and Anheuser-Busch all allow contributions of up to $60,000 a year. May Department Stores puts no upper limit on its program.
If there is a downside DRIPs, perhaps it's the fact that you would have no control over when the stocks are purchased. Most companies have a date set each month or each quarter (depending on how the plan is set up) to make all shareholder stock purchases.
To enroll in most DRIP plans, you are generally required to already own shares of the company stock (which you would have to buy through a brokerage company). But a small, growing number of companies are beginning to offer programs that allow even new investors to buy shares directly through the company.
DRIPs are perfect for investors who want to build a position in several companies at the same time with relatively small monthly contributions--and without getting killed by brokerage commissions. The minimum contribution limits range from about $10 to $50 per payment, depending on the company. And, if you wish, your monthly or quarterly contributions can be deducted automatically from your bank account. It's no way to treat your broker, but it's a great way to get the most from your investment dollars.
(From 100 Ways to Best the Market, by Gene Walden)