Cheap Ways To Buy Dividend Stocks

by Guest Blogger on 2011-03-0911

This post was written by Ramsay, author of the dividend stock blog and the top dividend stock investment service.

If you are an individual investor who would like to put more of your capital into income-generating dividend stocks and less into paying brokerage fees, you may be looking for alternatives to traditional stock purchasing. Many independent investors have discovered that programs such as:

(1) A Dividend Reinvestment Plans (known as DRIPS)
(2) Direct buy programs, along with
(3) The use of discount stock brokers

can virtually eliminate fees or help to keep them at a minimum.

3 Cheap Ways To Buy Dividend Stocks

So let’s take a look at three affordable ways to buy dividend stocks.

#1 Try A DRIP

A Dividend Reinvestment Plan is one way in which individuals can buy dividend-producing stocks directly from the company. Once enrolled, you authorize the company to apply dividends to the purchase of additional company stock. Many DRIPS also give shareholders the option of making cash payments into the DRIP in order to buy more shares.

Currently, close to 1,000 U. S. companies offer DRIPs, through which existing shareholders can buy additional stock without using a broker as a go-between. You can also hold fractional shares, according to the amount of your dividends, which will accrue to a sizable quantity of full shares over the years.

While the majority of companies offering DRIP programs do assess commission fees for share purchases, a few charge fees that are still far lower than standard brokerage charges. In addition, about 10 percent of those corporations offering DRIPs give participants certain stock discounts of as much as 10 percent as compared to the prevailing market rate. The only catch is that in order to be eligible for most DRIPs, you must already own stock in the company. Most investors purchase their initial stock through a brokerage firm, secure in the knowledge that those services will not be required after DRIP enrollment.

#2 Go For A Direct Buy Program

Another way you can pick up stocks at low cost is by purchasing your initial shares in some companies through Direct Purchase Plans (DPPs). Whether you plan to enroll in a DRIP or simply wish to become a stockholder, more than 2,000 U.S. companies offer no-load stocks to new investors. These are shares in a company that are directly available to the public without the services of an intermediary.

While saving a brokerage fee is an incentive to invest, make sure you look over company’s prospectus thoroughly before buying shares in any corporate entity. Compare the amount your investment stands to realize in dividends versus paying a brokerage fee for a better return with another company. Also, unless you are an experienced trader, you can benefit from tapping into the expertise of a full-service stock broker.

3. Work With A Discount Broker

If you are a savvy investor, you are able to make your own financial decisions. If you need some assistance, discount brokers offer abbreviated services for cut-rate fees. Here’s a list of our favorite brokers that have lower commission rates:

Discount Brokerage
Pricing Notes
Scottrade $7 per stock trade
OptionsHouse $3.95 per stock trade; flat commission rates
TradeKing $4.95 per stock trade; flat commission rates
Firstrade $6.95 per stock trade
Zecco 10 free stock trades (with requirements), $4.50 per stock trade

Interview a few cheap online brokers before selecting one, because different brokers operate differently and charge different fees. Make certain that your account is insured by the Securities Investor Protection Corporation (SIPC) before handing over a deposit.

With a clear understanding of the lower-cost options available, you can place your money where it makes the most sense. Whether you decide to go with a DRIP, a DPP, or discount brokerage services, you can start out wisely and gain knowledge as you go.

Disclosure: We have affiliate relationships with some of the companies we feature on our site. As an affiliate, we have carefully screened these brokers for quality.

Copyright © 2011 The Digerati Life. All Rights Reserved.

{ 7 comments… read them below or add one }

Ray March 11, 2011 at 8:14 am

I’ve always liked the idea of buying stocks that pay dividends. I think the economy and stock market have changed over the last few years. I don’t think we can expect the rosy predictions of average 8-12% annual appreciations in stock values in the future, especially with the Fed printing money like it’s going out of style. Maybe this is a smarter approach. Thanks for the article!

Pat S. March 11, 2011 at 1:10 pm

Speaking of DRIP plans… Many brokerages now allow you to choose dividend reinvestment as the default dispersal of any dividend payment, meaning even companies without formal direct buy DRIPs can act just like a dividend reinvestment plan, without costing you brokerage fees.

~Pat S.

Morgan Silver Dollars March 15, 2011 at 11:21 am

I think participating in DRIPS or DPPs, and the like is a very smart way to invest in dividend paying companies. Your returns are juiced more by doing this rather than leaving dividends in a brokerage account and the dividends keep growing over time, automatically purchasing more shares for you. If you’re going to buy dividend payers, this is the way to go.

Dividend Growth Investor March 16, 2011 at 7:53 pm

Actually Zecco has discontinues its free stock trades. So now the commission is $4.95/stock trade.

I am probably going to start investing money using Sogotrade, which charges a flat $3/trade commission..

Silicon Valley Blogger March 16, 2011 at 8:38 pm

Thanks Dividend Growth Investor! I’ll make that update on Zecco. Good catch!

my two cents March 20, 2011 at 6:07 pm

All companies with stock have a “stock transfer agent”.

Some companies (but now all) allow you to buy stock directly (via their stock transfer agent) without a regular broker.

First, check the website of a company you are interested in buying shares in. Sometimes their “Investor” page might have some info.

Otherwise check out some transfer agents’ websites. Computershare is a big one (I do not have an interest in them). There are others.

Kathryn C March 28, 2011 at 9:17 am

To Ray’s point, I just read this article in smart money on dividend paying stocks and thought it would be useful. Probably already preaching to the converted….but still good.

Check out this SmartMoney link.

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