More firms offer direct-purchase plans Investors seeking to avoid fees take advantage of stock-buying programs



Mutual funds turned millions of Americans into stock market investors by letting them buy into a diversified portfolio without a lot of money. With no-load funds, investors don't even need a broker.

Now a growing number of public companies are letting investors go one step further and buy stock directly from the company, usually without commissions or fees.

This cuts out all the middlemen. Buying directly means buying without brokers, without mutual funds and usually for much lower minimums than what most funds require.

Direct stock purchase plans -- allowing investors to deal directly with the company that issues the stock -- have mushroomed from just a handful to almost 100 in the past year. And industry watchers predict the real growth has yet to come.

"We are projecting within a year we'll have 500 to 600 companies," said James J. Volpe, vice president of First Chicago Trust Co. of New York, the nation's largest stock-transfer agent that helps companies implement the plans.

Opening a direct-purchase stock plan account is no different from opening one with a no-load mutual fund. The investor calls the company and asks for a prospectus -- a document that describes the terms of the plan -- and an application. Filling out the application is usually a matter of just writing down one's name, address, telephone and Social Security number and the amount of the initial investment. The investor then mails a check with the application, and that's it.

"We are seeing the beginning of a whole new way of investing," said Mr. Volpe, who is also the director of DirectINVESTOR, a not-for-profit service that provides information about the plans.

"These plans are bringing a whole new level of investment opportunities to individual investors and are taking a lot of mystery out of the stock market," Mr. Volpe said.

Already more than 900 companies allow investors to buy shares directly once they enroll in their dividend reinvestment plans. The catch is, most of these "DRIPs" are open only to "shareholders of record," those who already own the stock and have it registered under their own name, not that of a brokerage house.

With the direct-purchase plan, anybody can buy stock from the company. Although many of the plans are enhanced versions of their companies' DRIPs, reinvesting dividends is not always required. In fact, some companies that offer direct-purchase plans, such as AirTouch Communications and US West Media Group, pay no dividends.

"That is significant, because it shows companies don't need to pay a dividend to offer a direct-purchase plan, and that opens the door to potentially other companies to do the same," said Charles Carlson, editor of the DRIP Investor newsletter and author of the books "No-Load Stocks" and "Buying Stocks Without a Broker."

Mr. Carlson coined the term no-load stocks because most of the companies that accept direct purchases charge no commission or fee to buy the stock. (Most charge a nominal fee to sell.)

"This is simply an opportunity to broaden our base of individual shareholders," said Kenneth Janke Jr., senior vice president of investor relations at AFLAC Inc., a leading provider of supplemental insurance that began offering a direct-purchase plan in January. "It's more of a shareholder service than anything else."

But the companies also have their self-interest at heart.

"They are bringing in investors who are going to be providing buying support for them," Mr. Carlson said. "And individual investors, as opposed to the big institutions, tend to be more loyal to management."

By offering a direct-purchase plan, companies also can raise money at a lower cost than going through an investment banker, Mr. Carlson said. "And a third major benefit is that these plans provide the companies with a competitive advantage. If McDonald's can turn you into a shareholder, you are more likely to buy a Big Mac instead of a Whopper."

McDonald's entry into the direct-purchase plan pool in November was significant for two reasons. The fast-food giant is a top-performing blue chip, the stock most widely held among members of the National Association of Investors Corp., a group of 370,000 individual investors and members of investment clubs throughout the country.

"Given the high profile of McDonald's," Mr. Carlson wrote in the December issue of DRIP Investor, "the plan lends further credibility to the no-load stock concept and will no doubt generate increased awareness of the concept in corporate America."

But McDonald's went against the grain by setting up three layers of fees in its "MCDirect Shares" plan, from a one-time $5 enrollment fee to a small charge for each additional purchase (higher if made by check, lower if by electronic transfer), plus a $3 annual maintenance fee deducted in quarterly installments when dividends are reinvested. "I, for one, think it stinks," wrote a DRIP Investor reader in the January issue.

Pub Date: 4/14/96

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