If all the recent attention given to prospects on Wall Street has piqued your interest, there's a way to get involved in the market that won't cost you an arm and a leg.
Dividend reinvestment plans permit millions of Americans to automatically plow their dividends into buying additional company shares. There are no brokerage fees and, in some cases, a discount on the price of shares purchased. Mergers, acquisitions, leveraged buyouts and omitted dividends have curtailed the number of dividend reinvestment plans available in recent years, but nearly 800 firms still offer them in 1991."Dividend reinvestment plans have been wildly successful, building shareholder loyalty and providing a terrific way to build an individual portfolio conveniently at low cost," said Joseph Tigue, managing editor for The Outlook, published by New York-based Standard & Poor's Corp. "A lot of people receive piddly dividend checks and go out and blow them, but this way you can turn them back into more shares."
To join, an existing shareholder completes an authorization form and mails it to the firm or bank administering the plan. Participants receive statements indicating the number of full and fractional shares purchased and prices paid. At specified intervals, the investor also has the opportunity to buy additional shares - an amount ranging from $10 a month to $60,000 a year - through the cash purchase option. When you wish to withdraw from the plan, you notify the company in writing.
Some companies permit non-shareholders to buy the initial stock directly from the company without going through a broker, among them Texaco Inc., Manufacturers Hanover, Central Vermont Public Service, W.R. Grace & Co., Johnson Controls, Kroger Co. and Procter & Gamble.
"The investor in the plan doesn't have to think about it every day or every week," said Sumi Kinoshita, editor of the Directory of Companies Offering Dividend Reinvestment Plans. "However, I'd caution anyone investing that they must keep track of the viability of the company, for you shouldn't just let the investment sit there without thinking about it from year to year."
A three-page list compiled by The Outlook of companies offering dividend reinvestment plans is available for $2 by writing to Standard & Poor's Corp., 25 Broadway, New York, N.Y. 10004. The Directory of Companies Offering Dividend Reinvestment Plans, a 132-page book that goes into greater detail about individual plans, is available for $28.95, including postage, from Evergreen Enterprises, P.O. Box 763, Laurel, Md. 20725.
About one-third of American Telephone & Telegraph's 2.5 million shareholders are enrolled in its dividend reinvestment plan. The number of enrollees suffered a slight decline after AT&T instituted a $1 service charge for reinvestment, or 10 percent of the dividend reinvested, whichever is smaller.
"We also set a minimum share-owning requirement of 10 shares to enroll in the plan," said Richard Gray, a division manager for AT&T. "Some investors probably opted to withdraw simply because they only had a few shares to begin with."
The larger a firm's dividend, the more money goes toward new shares.
"A utility is worth strong consideration for a dividend reinvestment plan, since an income stock's larger yield means those dollars can buy a lot of shares over time," said Robert Richter, head of investor relations at Pacificorp, an electric utility in Portland, Ore.
Gerber Products and Motorola Inc. permit shareholders to open dividend reinvestment plans for a child or grandchild and have the dividends buy more shares of stock for that child. The child's plan share dividends will also be reinvested to accumulate over the years.
That's just one reason why Gerber's plan has grown.
"Our rise to 6,168 investors in the dividend reinvestment plan, up considerably from 4,900 in 1988, is primarily due to greater awareness of the program and the opportunities it offers INVESTContinued from D?
small investors," said Yvonne Lee, corporate secretary for Gerber in Freemont, Mich.
Dividends reinvested through a reinvestment plan are taxable to the participant, as is the difference between fair market value and discounted price. As a result, it's important to retain year-end statements containing pertinent financial information about your shares.