to Buy a Stock Directly from
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,
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
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
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