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How to Buy a Stock Directly from the Company

Imagine calling investor relations at Lucent Technologies, Home Depot or Wal-Mart and saying you'd like to buy a share of stock with the $50 you just received from Grandma. Think they'd give you a laugh and tell you to call your broker? Think again.

Today you can bypass brokers and their hefty commissions by purchasing shares directly from more than 1,500 U.S. and foreign companies, including the three mentioned above. More companies are launching Direct Purchase Plans -- also known as Direct Investment Plans and sometimes referred to as no-load stocks -- every week.

"One to 200 companies add direct purchase plans every year," says Charles Carlson, author of No-Load Stocks and editor of the "No-Load Stock Insider" newsletter. Other notable companies that have recently added DDPs include Exxon, GTE Corporation, Merck, Pfizer and McDonalds. To view a comprehensive list, check out enrolldirect.com.

DPPs grew out of dividend reinvestment plans, which let shareholders buy additional shares with their dividend payments instead of taking those dividends in cash. (See "What the world is a DRIP?")

The advantage to DPPs is obvious: buying shares through these plans costs less than buying stock from a broker. Many companies charge nothing when you buy or sell. Most collect modest transaction fees of $2 to $10 plus 3 cents to 12 cents a share. In contrast, you pay $8 a trade for an online broker like Ameritrade, $25 to $45 a trade at a discount broker like Charles Schwaab or Quick & Reilly and as much as $90 at a full-service firm.

While online brokerage firms seem to lower their fees every day, buying stock directly from the company can come out cheaper for anyone who wishes to start investing with a small amount of cash -- say, enough to buy one or two shares. Netstockdirect.com, a site that provides detailed information on DDPs, highlights the companies that accept investments of $100 or less. On subsequent purchases, most firms allow you to spend no more than $50, and they issue you fractional shares if your money is worth slightly more than one share. This way, not a penny of your hard-earned dough goes uninvested.

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Many direct-purchase plans also offer mutual fund style convenience. For example, you can have money taken from your savings account to purchase more shares; you can receive dividends in the form of additional stock; and, you can buy shares over the telephone or put your shares into an Individual Retirement Account.

After all this good stuff, you might want to know what's in it for the company. Plenty. For one thing, DPPs attract individual investors who otherwise might not buy stock. Also, every new stockholder is a potential customer.

"Think about it," Carlson says, "If you own shares of Reebok, you're more likely to purchase their sneakers instead of Nike's. Same goes with the computer, phone service, or brand of shampoo you use."

And if you're wondering why you've never heard of buying stock directly from a company before, well, the reason is simple. The companies operating no-load plans aren't permitted, under mandate from the Securities and Exchange Commission, to advertise the programs aggressively. And, says Carlson, "Stockbrokers are not about to extol the virtues of these programs for obvious reasons." Hmm, maybe because they don't make money on them.

-- Posted: July 18, 2000

 
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