"Dividend Reinvestment Plans or DRIPS are Great for Small Investors"

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The best way for small investors who don't have at least $1000 available to get started building their retirements in dividend paying stocks is a Dividend Re-Investment Plans or DRIP or DRP.

With DRIPS, you open up an account at the company that pays the dividends. Not all companies have DRIPS, but many of the best ones do. Right now, there're over 1000 companies that run DRIPs.

You can start a DRIP account with a small amount of money, sometimes for the price of just one share of the company's common stock. The company holds the stock for you, and when it pays dividends, your share is automatically reinvested in more shares of the company's stock.

Each DRIP plan can be different, but that's the basics.

You usually don't have to pay a brokerage commission, so this can save you money when you're just getting started.

You can also add to your plan in small amounts, even having them automatically deducted from your personal checking or savings account.

There are some drawbacks to DRIPS:

1. If you ever want to sell any of your shares, you'll have to be able to tell the IRS the original price you bought it for. This may be a record-keeping nightmare 10 years in the future after your account is full of fractional shares all bought for different prices.

Of course, my opinion on that is simply . . . don't ever sell them.

You should reinvest the dividends until you retire and need the income. But don't ever sell the accumulated shares, and then you won't have to be concerned about the tax consequences.

2. There's no diversification unless you open up many DRIP accounts. If you've got the money to do that, just get yourself a cheap but secure online broker that will reinvest your dividends at no additional charge.

(They will charge you a commission for buying the original shares or more shares if you add to your account, but this is a small expense if you use a deep-discount broker.)

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Rick Stooker

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