Next steps in DSPP/DRIP investing are to decide the company or companies in which you want to invest, and starting your investment(s).
Step 1: Creating an account
As such, your account gets created during the process of starting to invest. Thus, say you want to invest in Walmart (WMT) on Computershare, which is Walmart’s Transfer Agent & Registrar. Then, you’d go to “Comapny Research” on Computershare and bring up the page for Walmart’s DSPP. There, you’d select the “Invest Now” button at the bottom right of the page and get started.
Step 2: Start investing
To create an investment or to start investing you will need the following:
- What company do you want to invest in? And, does this Transfer Agent represent the company I want to invest in. You created an account with Computershare, but its Shareowneronline that is the Transfer Agent for CVS Health Corporation (CVS), the company you want to invest in using the DSPP / DRIP plan. A publicly listed company, if it offers a DSPP / DRIP method of investing, will have its Transfer Agent listed under “Investor Relations” on the company’s website. For example, for CVS you can go to Shareholder Services to find the Transfer Agent.
- How much money do you want to invest? Plans start with as low as $25 per month or lower, so it is okay to start with small amounts to allow yourself time to understand the process, reach a level of comfort with your choice of company / investment, and understand the ups and downs of the market and how your investment is performing during market highs and lows. You can increase your investment any time, and since you’re in it for the long term, even if it takes you a year to figure stuff out, its 1 year invested in learning for an investment life of say 30 or 40 years. Rome wasn’t built in a day, as they say :). Be patient with yourself, just like with your investment, while not letting years go by before you do anything.
- Investment frequency and period to know when and for how long you want to invest. Different combinations of frequency and period are possible, with some automated features available to support your frequency and period. So, for example, you may invest $50 every month in CVS Healthcare Corporation for a period of 1 year, or for a period of 40 years.
- Frequency: this is determined by the Company, and not the Transfer Agent. So, for example, CVS may allow monthly or bi-monthly investments as follows – 1st of every month, 15th of every month, or 1st and 15th of every month. The last one, 1st and 15th of every month, is helpful if you have small sums of money from your paycheck that you can invest every two weeks. You could then invest a total of $50 per month, for example, by doing two investments of $25 each two times a month. The one thing to keep in mind while investing small amounts over larger frequencies is that it may cause you to have higher transaction fees than what is considered advisable. Ideally, you want your investment amount to be such that you don’t incur more than 1% as transaction fees for every investment you make. But, even if it is slightly higher, its still better to be invested than not, given the long term return you may get knowing that the transaction cost is a one-time cost.
- Period: unfortunately, the period of investment has to be managed manually; that is, you have to start and stop the investment by going to your account and performing the steps required to start or stop the investment. There is no facility provided to say you want the investment period to be from 01-Jan-2018 to 31-Dec-2018. You have to manually go on 01-Jan-2018 and start your investment, and then go online into your account again on 31-Dec-2018 and stop your investment. By the way, starting and stopping your investment refers to putting in new money. The investment that you have already made remains there as your shareholding in that company, accumulating dividends and growing over time.
- Dividend Reinvestment and what do you plan to do with your dividend. American companies are used to declaring dividends on a quarterly basis along with the Quarterly Results of the company. European and Indian companies declare dividends annually, with some Indian companies declaring two or more dividends in a year called Interim Dividend and Final Dividend. Sometimes a bonus dividend, often called Special Dividend, is declared along with the regularly declared dividend or on an ad hoc basis to reward shareholders when the company is doing extremely well, or the company has come across unanticipated cash due to some business event, like a sale of a brand or a tax cut offered by the government or one time royalty payment etc. You can decide to
- Reinvest 100% of dividend received back into the same company’s shares, or
- Be paid out 100% of the dividend received into your bank account, or
- Go for a percentage combination of dividend reinvestment and payout. So you could say I want 50% dividend reinvestment and 50% payout, which takes care of 100% of the dividend you received. You could do any combination, 10%-90% or 65%-35% etc.
Read before you invest
Lastly, before you start your investments, it is highly recommended that you read the DSPP/DRIP Plan Brochure, understand the Investment Options, Plan Fees, and Plan Features either online or in the Plan Brochure.
Depending on the company and your preference, you may be able to order the Plan Brochure and Enrollment Forms from the company or download them directly from the online page on the Transfer Agent’s website. I generally download these from the Transfer Agent’s website in electronic form so that I can start reading immediately and get on the way to investing.
That’s it! Once you have thought through the above information, read and understood the plan features, investment options, and plan fees, you’re ready to jump into the market and become a part owner of a business.
Next, follow the guided process on the Transfer Agent’s website and start your investments.
PLEASE NOTE:
In a few cases, the company requires you to already own 1 share in the company before you can start investing via the DSPP/DRIP investment route. An example is Johnson & Johnson (JNJ). In such cases, you have 3 options:
- Buy 1 share from your friend or relative to get started, or
- Buy 1 share in a brokerage account and have it transferred to the Transfer Agent like Computershare, to make it a DSPP type holding, or lastly
- Use a service like Moneypaper’s Drip Investing. Moneypaper provides you the service of buying 1 share and registering it in your name with the company. It does charge anywhere between $20 to $60 as service fee for each share purchase and registration with the company. The price of the share is not included in this service fee. So, if you decided to buy 1 share of JNJ, and the price of JNJ was US$ 100, then you’d pay $20+$100=$120 for 1 share of JNJ. And, it may take a few weeks before you get confirmation that you are a DSPP owner of JNJ share. If I recall correctly, the DRIP part you can advise on the form you fill out for JNJ and submit to Moneypaper. You can get discount on your service fee if you become an annual member of Moneypaper. Moneypaper also has occasional promotions where they reduce the service fee for a set of companies if you signup to become a DSPP/DRIP investor in that company. The annual membership fee gets recovered via the discount you get in service fee.
I have used option 3 to get started with DSPP/DRIP investing in JNJ, Aflac, and Nestle, S.A. I took an annual membership 1 time and recovered the membership fee completely by signing up for DSPP/DRIP investing in these companies. Thereafter, I have kept getting promotional emails, but I have not needed to use Moneypaper for the other companies that I have invested in under their DSPP/DRIP plans. I was able to directly invest through Computershare and Shareowneronline.
I hope that will get you started on DSPP/DRIP investing. Don’t wait, let’s start :)!
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