DIVIDEND REINVESTMENT PLANS
The advent of the 10-second, $10 trade relegated the slow-moving dividend reinvestment plan, or DRIP, to the tar pits of investment strategy. But with the stock market in turmoil, many investors would rather ride a brontosaurus than a tiger. Building on the DRIP's age-old strengths, online brokerages BUYandHOLD and Sharebuilder have reengineered it for the Net.
DRIPs evolved as a way for old-economy behemoths like Gillette to sell shares to people too conservative for stock trading. Typically, investors pay a predetermined dollar amount each month (plus a small commission), accumulating shares while minimizing the price volatility through dollar-cost averaging. Dividends are reinvested automatically and at no extra charge, so earnings grow slowly but surely, whether or not the stock appreciates.
BUYandHOLD and Sharebuilder handle these transactions online, letting investors amass a portfolio of even the raciest stocks - BUYandHOLD offers 4,100, Sharebuilder 4,500 - even if the companies don't offer DRIPs. How can they sell you $5 worth of Siebel? By aggregating orders for fractional shares and purchasing them at once. "That drives down transaction costs and gets us a better execution price," says Sharebuilder CEO Jeff Seely.
The savings show up in commissions that make even the cheapest alternatives look pricey. Sharebuilder charges $2 for weekly or monthly purchases, $5 for unscheduled purchases. BUYandHOLD offers unlimited trades for $9.99 per month; otherwise, the commission is $1.99 for each regularly scheduled purchase or $2.99 à la carte. To execute a sell order, however, Sharebuilder charges $19.95. Clearly, long-term investing is the name of the game, especially at Sharebuilder, which trades just once a week. BUYandHOLD trades twice daily - a more advantageous schedule, though it still borders on catatonia. "If trading at any time of the day is your priority," admits BUYandHOLD president Michael Macleod, "we're not for you."
But if you can curb your urge to second-guess the market, BUYandHOLD and Sharebuilder offer a time-tested alternative to the Net's fast-and-loose ethos. DRIP, it seems, is a dinosaur that's destined to survive.
- Andrew Marks (amarks@nyc.rr.com)
BUYandHOLD: www.buyandhold.com.
Sharebuilder: www.sharebuilder.com.
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