Stock represents ownership in a company. The traditional method of buying stock involves opening an account with an investment brokerage firm and placing a buy order with your broker. Your broker enters the order and you pay the broker a commission for acting as the middle man in the transaction. You can cut out the middle man in some cases by purchasing stock directly from the company.
1. Research the company whose stock you wish to own. Contact the investor relations department of each company that you are interested in and request an annual report. Study the report to determine if the company's financial results and prospects match your investment objectives and temperament. Request a prospectus of the company's direct stock purchase plan. Not all companies offer direct stock purchase plans, and those that do may have different rules that govern how their plans are operated.
2. Enroll in the company's direct stock purchase plan. Some companies may allow you to enroll online while others may require you to fill out a paper application. You will typically need to provide basic individual information including your name, address and social security number. You may need to provide information regarding a beneficiary in the event of your death. Designate how you want any dividends paid on your stock to be handled. You may have the option of taking your dividends in cash, having them automatically reinvested in additional company stock, or a combination of the two.
3. Fund your account. Different companies have different minimum initial investment requirements, and different methods by which the investment may be made. Companies may allow you to make your initial investment by check or money order, or by electronic funds transfer. Some companies offer an automatic monthly deduction from your checking or savings account.
- Companies that offer direct stock purchase plans typically hold your stock in a street name, which means you will not receive a stock certificate for your investment. Your account may include partial shares of stock. The company trustee will pool all funds invested in the plan and make one purchase of stock at regular intervals. Each investor will receive a pro rata share of the stock purchased. The company typically covers the brokerage fees associated with stock purchases made in their direct stock purchase plans.
- All investments in the stock market involve some level of risk. You may lose some or all of your investment.