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Direct Stock Purchase Plan | List of Companies, Benefits & How to Buy ?

Direct Stock Purchase Plan (DSPP)

Typically, stock purchases are made by investors through brokerages like banks or online investment platforms. In this scenario, the brokerage acts as a middleman between the company and investor. Brokerages often impose commissions or currency exchange fees for each transaction. An investor can avoid the middlemen and buy shares directly from a company through a direct stock purchase plan. Learn more about direct stock purchase plans (DSPP), including how they work, their advantages and disadvantages, and the implications for individual investors.

What is a Direct Stock Purchase Plan (DSPP) ?


A direct stock purchase plan is a program that enables individual investors to buy a company's stock directly from that company without the intervention of a broker. While some DSPP providers handle these transactions using transfer agents or third-party administrators, other DSPP providers make their plans directly available to retail investors. These plans have reasonable fees and occasionally let you buy shares at a discount.

DSPP enables an individual investor to purchase shares of a company's stock directly from the business or, more frequently, through the company’s selected agent. Investors must open an account and make a minimum deposit. The majority of plans function by having investors make electronic deposits into their accounts. While not offered by all publicly traded firms, direct stock purchase plans are available at some of the biggest and most recognizable corporations in the United States, including Campbell Soup, Walmart, Intel, Coca-Cola, and Starbucks.

Key Facts of Direct Stock Purchase Plan


  • A program known as a direct stock purchase plan (DSPP) enables individual investors to purchase stock directly from the company.
  • DSPPs can be established with very minimal money. While some DSPPs are free, the majority charge nominal fees.
  • These programs offer a quick and automatic way for long-term investors to accumulate shares over time.
  • Investors can purchase fractional shares using DSPPs for as little as $25.
  • Each share's price in a DSPP is an average price over a period of time rather than the same as the market price.
  • The option of directly reinvesting dividends is provided by many direct buy programs, also for a fee.
  • The most common direct share purchase plans also impose spending limits on individual investors.

How Does a Direct Stock Purchase Plan Work ?


A DSPP is a way for individuals to purchase stocks directly from a company rather than through a brokerage. Using a direct stock purchase plan, individual investors can open an account and make contributions with the intention of buying shares directly from a certain company. A monthly payment is made by the investor, and the business uses that money to buy shares. In accordance with the funds available from deposits or dividend payouts, if any, the plan purchases additional shares of firm stock (or fractions of shares), as needed, each month.

This system enables it simple and straightforward to gradually amass shares of a specific company. DSPPs are a cost-effective alternative for novice investors to access the financial markets because these plans frequently have very little or no costs. Participation deposits might start as low as $100 and go as high as $500. Some businesses let you buy or sell shares directly from them without using or paying commissions to a broker. However, there may be a cost associated with using the plan's services. Before enrolling, make sure to read the disclosure materials provided by the company.

Before you can join in a firm's direct stock plan, several companies require that you already own shares in the company or are an employee. Instead of needing to pay for a complete share, you might be able to purchase shares by investing a certain sum of money. Some programs demand a minimum investment or mandate that you keep a certain minimum balance in your account.

Features of Direct Stock Purchase Plan


1) Initial investment :
If you are not already a shareholder, you must purchase at least 250 shares of our common stock, which equates to five $50 investments spread out over a five-month period.

2) Reinvesting dividends automatically :
Additionally, you can enhance your stock holdings by having your cash dividends reinvested automatically. You have the option to choose whether to reinvest all of your dividends or just a portion of them in new shares of common stock.

3) Optional cash investments :
Additional shares of stock may be purchased with optional cash investments of at least $50 and up to $250,000 each calendar year. You have the option of making optional monetary investments by check or regular automated withdrawals from your bank account.

4) Share safekeeping : 
Whether or not the shares were issued under this plan, you can still submit your common stock certificates for the administrator of the plan to maintain in a safe place. You won't be charged anything for this service.

5) Automated transactions :
By setting up automatic rights for your account, you can carry out some plan transactions over the phone or online.

6) Fees :
New investors must pay a $15 enrollment fee once. Existing shareholders who transfer shares into the plan are not charged an enrollment fee. All brokerage charges and other costs associated with stock purchases, including your initial purchase, stock transfers, dividend reinvestments, and dividend payments, are covered by General Mills. On the sale of stocks, you must pay brokerage commissions and other costs.

How are Direct Stock Purchase Plan Used ?


Smaller investors can purchase equity in corporations through a direct stock plan. They can purchase shares directly from the companies. In accordance with this arrangement, you merely move checking or savings accounts to the desired company. The business then decides on a required minimum investment for both the first and subsequent transactions. These minimums are occasionally lower than the price of a single stock.

This makes it possible for investors with limited resources to buy some of the company's shares. The money collected from DSPP participants is then pooled by the plan administrators, who primarily use it to buy firm shares at market value on a regular basis. You will always receive informational DSPP issue statements in addition to your bank statement. Your share count on the listing, any dividends you have earned, and any sales or purchases done on your behalf will all be disclosed to you.

How Do Companies Benefit from Direct Stock Purchase Plan ?


As much as DSPPs might be advantageous to investors, they can also be profitable for the company providing them. DSPPs might attract new investors who otherwise wouldn't have been able to fund the business. A DSPP might also give a business the opportunity to raise more money at a lower cost. Companies that provide DSPPs typically provide information about the plans in the investor relations or shareholder services sections of their websites.

Similar to how it supervises brokerage activities, the Securities and Exchange Commission (SEC) also oversees DSPP activities. Therefore, even though investing in DSPPs uses a little different technique than doing so through a broker, both methods of buying stock carry the same dangers.

What Companies offer a Direct Stock Purchase Plan ?


1) Walmart offers a DSPP with a $20 setup charge and a $0.05 processing fee per share. However, because there are no administrative costs associated with dividend reinvesting, they encourage it. Walmart also demands a $250 down payment, which can be divided up into ten automatic instalments of $25 each.

2) Amazon requires a $250 down payment up front without the option of breaking it up into smaller, subsequent instalments. They have a $250,000 annual maximum and charge $0.05 per share in processing costs. Amazon, meanwhile, does not currently pay dividends and has no plans to do so.

3) ExxonMobil has a $250 minimum investment requirement. They do not, however, charge purchasing fees, and they have a distinguished record of dividend payments. Exxon typically distributes dividends four times a year, and in March 2021, it was $0.87 per share. They do, however, levy fees following sales.

4) The Coca-Cola Company charges a $500 buy-in price (the same as Pfizer) plus a $10 one-time setup fee. Their stock processing fees, which are $0.03, are slightly less than those charged by both Walmart and Amazon. Coca-Cola dividends have an annualized rate of $1.68 and are also paid out every three months.

5) Pfizer provides a DSPP that needs either a $500 down payment or 10 monthly instalments of $50. Their maximum on dividend investing fees is fairly high, at $3. Pfizer's annualized dividend yield is $1.56 per share, with a maximum investment amount of $120,000 each year.

How to Buy Direct Stock Purchase Plan ?


Buying a direct stock purchase plan is straightforward as long as a company has it on offer. Since they frequently include information for prospective investors there, you should typically start with the FAQ area of their website. You'll most likely find Computershare, a transfer agency, after this stage. But since Computershare manages so many DSPPs, you could probably just visit their website and perform a search for the business you're interested in.

You must either log in or register after finding what you are searching for. You will need to input your social security number, or your EIN, and your ZIP code. This is a straightforward process. Even the tried-and-true captcha task is present before moving further. You can begin investing after completing registration and confirming your email. It follows that you must prepare yourself with the appropriate strategy. This entails choosing your preferred recurring investment amount and making the minimum needed payment. You are now ready to see the increase in the value of your stock in a company.

Benefits of Direct Stock Purchase Plan


1) Easy and reliable :
Direct buy plans are simple and affordable, and they are typically provided by dependable, well-respected businesses that frequently distribute dividends on a regular basis.

2) You can buy without a broker :
Bypassing brokers, the programs enable investors to purchase small-share fractions of major corporations for as little as $25.

3) Reinvesting dividends :
Additionally, these plans enable shareholders to monitor their accounts and stock records online as well as reinvest dividends.

4) Beneficial for long-term investment :
Direct stock purchase plans can be effective long-term investment vehicles, particularly for investors that employ dollar-cost averaging by making regular stock purchases.

Disadvantages of Direct Stock Purchase Plan


1) Unknown purchase price and date :
The difficulty of cost-basis computations and price transparency arises from the fact that investors who purchase stock through direct purchase plans are unaware of the precise purchase price or the date the transaction occurs.

2) They might cost more than online trading platforms :
Growing online trading platforms, which can be as cheap as certain direct buy plan prices or even less expensive, offer more investing options.

3) Plan comes with restrictions and rules :
To fully comprehend the conditions and guidelines of each company's specific direct stock purchase plan, investors should carefully read the plan materials.

4) Unsuitable for Short-Term Traders :
Traders shouldn't use this way of investing because they frequently enter and exit markets. The greatest choice for traders is to remain with a cheap discount broker. DSPP is suited for long-term income investors as a result.

FAQs


What is Amazon Direct Stock Purchase Plan?
Amazon's direct stock purchase plan is known as Amazon DSPP. It makes it possible for private investors to purchase Amazon shares directly from the company. Amazon does not currently have any plans to pay dividends. Since you won't owe taxes on this kind of payout, this could really turn out to be a blessing in disguise.

How many shares should a beginner purchase?
Generally speaking, you should aim to invest in at least 10 to 15 different equities, since this will help to greatly diversify your portfolio. You can set your first investment amount as low or large as you choose, but you should aim to make it at least $500. Doing so will prevent various fees from significantly depleting your initial investment.

What stocks are the best for new investors to buy?
Your level of risk tolerance will determine everything about this. However, it is normally advised to stick to blue-chip stocks, which are those of sizable, reliable, and well-recognized businesses. This will reduce the possibility that you will lose the entire amount of money you initially invested.

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