No full-service broker required. No discount broker, either. That's what a "no-load" stock is all about.
American investors understand the concept of no-load mutual funds with no upfront sales charges, but that popular idea is expanding to individual equities.
There are about 60 stocks investors can buy directly from the issuing company.
That's expected to grow significantly in 1995 -- likely to more than 100 -- because a recent regulatory change makes it easier to set them up. The Securities and Exchange Commission issued a "no action" letter so a plan can be implemented almost immediately without a lengthy approval process.
While company dividend reinvestment plans traditionally permit direct purchases, initial shares generally had to be bought through a broker. A no-load stock lets you purchase initial shares directly.
"We do it to attract long-term investors because they create stability and aren't like some institutional owners that move in and out," explained Jack Eversull, vice president at Atmos Energy Corp., a Dallas natural gas utility permitting no-load purchase.
"While we have a $200 minimum initial investment, we also see a lot of investments of $20,000 or more."
In addition, Atmos discounts any shares purchased with reinvested dividends by 3 percent from market price. When you sell, it will handle the transaction for a modest $5.
"We've had tremendous response, so much that we have a person who stays busy just typing up mailing labels," said Neil Turner, senior vice president at Regions Financial Corp., a bank holding company in Montgomery, Ala. "People see our stock as a good investment and realize they can get in the plan for $20 and make monthly contributions as well."
The no-load concept, an extension of existing dividend reinvestment programs, frequently features automatic bank withdrawal for purchases, telephone redemptions and individual retirement accounts. Shares are registered in book-entry form, though you can request a certificate.
"Companies feel they're efficient ways to raise equity capital and attract small investors likely to be more loyal," explained Charles Carlson, editor of the Dow Theory Forecasts investment letter in Hammond, Ind., and author of the new book "No-Load Stocks" (McGraw-Hill, $14.95 at bookstores) that lists such plans.
"In the case of many utilities where the regulatory environment is changing, these programs help nail down their current customer base and fend off increased competition."
They also make investors more inclined to be customers of the firm's products or services. But keep in mind that owners of no-load stocks must keep good records, since they get separate documents for each stock rather than a combined statement from a broker.
Firms set aside certain days to sell shares, so it's difficult for sellers to get a specific price. Written requests are often required. Some firms, in particular some utilities, limit purchases to their customers or to their specific state.
You've probably guessed one group that isn't happy.
"While brokers obviously don't like these plans, I'm somewhat surprised to receive calls from brokers asking me about our directory because a lot of clients are interested and they want to keep them as clients," noted Joseph Tigue, editor of the Standard & Poor's Directory of Dividend Reinvestment Plans, available for $39.95 (including shipping and handling) from 25 Broadway, New York, N.Y. 10004.
Some no-load stocks considered attractive investments include:
* Exxon Corp., favored by Mr. Carlson and Mr. Tigue for yield and steady performance.
* Morton International, picked by both because of its airbag business and improving specialty chemicals.
* Regions Financial, chosen by Mr. Carlson and Mr. Tigue for its 20 years of rising earnings.
* Mobil Corp., selected by both for attractive fundamentals and industry potential.
* Atmos Energy, a Carlson favorite for strong business, cost controls and dividend growth.
* Comsat Corp., selected by Mr. Carlson for potential in the telecommunications field.
* Barnett Banks, a Carlson pick based on its Florida region and reasonable price.
* Atlantic Energy, chosen by Mr. Tigue for good price and yield.
* Johnson Controls, preferred by Mr. Carlson for its market position and ability to achieve in difficult economies.