Reinvestment of dividends made simpler

March 04, 1994|By Andrew Leckey | Andrew Leckey,Tribune Media Services

The system may be the solution.

Dividend reinvestment plans offer an excellent way taccumulate stock without costing you an arm and a leg. They permit you to plow your dividends into buying additional shares at no brokerage cost, as well as make additional contributions.

Already offered by more than 900 U.S. companies, dividend reinvestment plans are undergoing worthwhile changes.

A growing number now permit you to make your initial investment in the plan directly through the company without a broker. The majority, however, still require that you hold the initial shares yourself, which means buying them through a broker.

As a convenience, some plans now permit you to have money automatically deducted from your bank account on a regular basis and invested in more stock. Individual retirement accounts are offered by some. Others give a discount on shares purchased.

Yet experts on dividend reinvestment plans agree that these innovative programs would get the biggest boost of all if computerized "book entry" registration of stocks is accepted by the Securities and Exchange Commission.

Under this system, proposed as a means of cutting the paperwork glut on Wall Street, stock ownership would be registered directly as a book entry with the company. Most shareholders wouldn't get certificates for shares when they purchase stock, though certificates would be available on request.

"This would make it much easier for companies to offer dividend reinvestment plans because of so much less paperwork," noted Sumi Kinoshita, publisher of the "Directory of Companies Offering Dividend Reinvestment Plans."

The nation's stock transfer agents, which handle transactions, are big proponents of book entry registration and have presented plans for implementing it to the SEC. It's being considered in discussions that also include the securities industry.

"A lot of investors are unhappy with the fees charged by brokerage firms for sending them their certificates," said Charles Carlson, editor of the monthly DRIP Investor. "While not revolutionary, book entry would clear the way for more firms to offer services such as dividend reinvestment plans."

As that debate continues, it has already been proven that the easier and more inventive a dividend reinvestment program is, the greater its popularity.

Exxon Corp. expanded its plan two years ago to permit purchase of shares without a broker and the ability to have either all or a part of dividends in the plan reinvested automatically. IRAs are also part of the deal. The result has been a jump in enrollees from 120,000 to more than 200,000.

"Automatic withdrawal of money from a bank account is a very good feature that should continue to help dividend reinvestment plans grow in popularity," predicted Joe Tigue, editor of the "Standard & Poor's Directory of Dividend Reinvestment Plans."

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