How to Directly Buy Dividend Paying Stocks

by Beverly Bird

Concern about broker's commissions does not have to stop you from investing in dividend-paying stocks. Six out of every ten listed securities have programs in place that allow you to purchase shares directly from them, according to USA Today. It’s not as flexible as buying through your broker, but it can save you some fees.

Research which companies offer direct stock-purchasing options. The SEC does not allow these companies to actively market or advertise such programs, so you’ll have to do some scouting. Several websites offer lists of these companies, and, for a small investment, you can purchase software specially designed to link you to them. You can choose one or more companies that offer direct buying, or, if you already have a certain stock in mind, you can check to see if the company offers this sort of service.

Familiarize yourself with the company’s disclosure documents, after you’ve determined how you want to invest. These are usually available directly from the company’s website. In some cases, however, the website will instead direct you to another site or location where you can access its disclosure statement. This information will instruct you on how to enroll for direct purchase with that specific company, how much or how little you can purchase and if there are any associated fees. If there are fees, they are usually significantly less than purchasing through your broker.

Determine what kind of plan you want. Some companies offer two options. One will pay out your dividends while the other lets you choose to reinvest your dividends instead. These are DRIPs, or dividend-reinvestment plans. If you earn a $10 dividend and the company is trading at $100 per share, it will pay you by assigning you an additional .10 share.

Follow your company’s directives for enrollment after you've determined the plan that most suits your investment objectives. The procedure can vary somewhat from company to company. Generally, however, you must hook your registration for purchase to your checking or another financial account. If you choose a DSP, a direct stock plan, rather than a DRIP, the company will usually pay your dividends into this account. It will also debit your account for your purchases.

Warnings

  • Your stockbroker can buy and sell stocks for you with relative ease, but direct buying involves registering anew for each company in which you want to invest. You generally can’t drop one that’s not performing well and immediately invest in another, unless you have other available funds.
  • There’s usually a lag time in selling when you purchase directly. Rather than your broker holding your stock in its street name with actual ownership recorded to you, the company holds the stock in its own name. You’re therefore at its mercy as to when and how it will sell your shares. This usually occurs at a pre-set date or time, and it may be "first come, first serve"; if other shareholders make the decision to sell before you do, you'll have to wait your turn. You can identify scheduled sales times and the company’s procedure for selling in its disclosure documents.

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