Dripping Up Dollars

If you have just $20 or $30 per month to invest in stocks, you can do so effectively, thanks to dividend reinvestment plans (DRIPs).

DRIPs permit you to buy shares of a company's stock directly from the company, bypassing brokers (and broker commissions!). Hundreds of major corporations (such as Nokia, Abbott Labs, Medtronic, ExxonMobil and PepsiCo) now offer these plans.

With traditional DRIPs, the company expects you to already own at least one share of its stock before you enroll, in your own name. So if you're not already a shareholder, you'll have to buy at least one share through a broker, paying the commission (learn about brokers with low commissions at www.broker.fool.com). Be sure to specify that you want the share(s) registered in your name, not the brokerage's name, as is typically done. Then you can open a DRIP account with the company and buy additional shares directly through it (or its agent). If you already own shares, you may have to pay your brokerage a fee to switch the registration from its name to yours.

A newer variety of DRIPs, direct stock purchase plans (DSPs), operate in much the same way, except you needn't own any shares before enrolling. You can buy your very first shares through them.

These plans permit you to "dollar-cost average," building a position in a stock by regularly plunking a certain amount of money into it. They'll even purchase partial shares for you. For example, if Coca- Cola is trading around $50 per share and you send in a $25 contribution, it'll buy about half a share. When the price is low, you get more shares, and vice versa. (Be sure to keep detailed records of all your purchases, for Uncle Sam.) Some plans even let you buy stock at a small discount to the prevailing price. You can simply click over to the Web sites of companies you're interested in, to see whether they offer these plans.

Learn more at www.fool.com/School/ drips.htm, www.dripinvestor.com and www.dripcentral.com.