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Dividend Reinvestment Plans (DRIPs) offer shareholders a way to buy stock directly from the company or through a transfer agent, usually through a monthly plan. They get their name from the fact that they also reinvest dividends paid, purchasing more stock.

One of the advantages of DRIPs is that an investor does not need a large amount of money to start – many plans allow investors who own just one share to enroll in a DRIP. Many also allow dividends to be reinvested with no fees, and most will let investors to purchase additional shares through a DRIP for nominal fees. Some plans allow investors to purchase stock at discounts of up to 10% from the current market price.

Investors in DRIPs have a long term investment horizon, and invest money regularly, most commonly on a monthly basis. This means that investments also benefit from dollar cost averaging.

Many companies run their own DRIP schemes, allowing investors to buy directly without the requirements to own shares. The administration o fthese schemes can be costly, however, so it is common for DRIPs to be run by third party transfer agents, whose costs are lower because they often provide the same resources for several customers. Finally, some brokers will allow shareholders to reinvest dividends at no cost. However, these plans apply to dividends only and don’t allow optional cash purchases as most company sponsored DRIPs do, which is one of the mot attractive advantages of DRIPs.

DRIPs are a great way to begin investing, and then continue to do so on a regular basis. They avoid brokerage commissions, and take advantaage of dividend reinvestment. An investor has natural dollar cost averaging nd will be investing in companies that he does not foresee selling in the near future.

We looked at the seven best stocks to DRIP.

General Electric Company (GE): A diversified industrial company, General Electric manufactures a range of products, from aircraft to railway engines, and services from water processing to business financing. Indications are that GE will evaluate its dividends quarterly, and its current dividend yield is 3.10%. With EPS expected to rise from last year’s $1.2 to $1.36 this year and then $1.66 the year after, it looks likely that the company will continue with its generous dividend policy. There is no fee for dividend reinvestments, though the company does charge a $3 fee for cash investments in its scheme.

Wells Fargo & Company (WFC): The fifth-largest bank holding company in the United States, with a total of 11,000 offices in 50 states, Central America, and the Caribbean. Though dividends were reduced in 2009 as a result of the financial crisis, the company has paid a dividend since 1939. Its 2011 dividend of $0.48 is covered five times by its EPS per share of $2.43. With analysts estimating these EPS to increase over the next two years to $3.47, a consistent dividend policy will see the dividend rise accordingly. Investments into the scheme are charged at $3 plus 3 cents per share, and an investor only needs one share to qualify. Dividend reinvestments are subject to a 4% fee.

EI DuPont de Nemours (DD) makes high performance materials, electronics, biotechnology, and safety and security products. Half of its sales come from overseas, and its 3% dividend yield is covered 2.18 times by its current EPS of $3.58. Estimates for net income would see its EPS rising to $4.40 over the next two years, and analysts expect the share price to react positively as the company comes out well from the economic downturn. Its DRIP scheme requires only one share to qualify, and fees for dividend reinvestment are capped at $3 as investing fees.

Travelers Companies (TRV) provides commercial and personal property and casualty insurance products and services to individuals, businesses, and government units primarily in the U.S. Its current dividend of $1.64 is covered 4.46 times by its EPS of $7.32. Though these EPS are expected to slide this year to $4.09, they are expected to recover the following year to $5.96 as problems overhanging from the financial crisis are worked through. It has plenty of scope to maintain, or even increase its dividend. Its scheme only requires one share to qualify, and fees for dividend reinvestment and further investing are limited to $3 plus 5 cents per share.

Coca Cola Company (KO) was founded in 1886 and is one of the top brand names in the world today. The company owns or licenses over 500 branded products across more than 200 countries. Its last year dividend of $1.88 was covered 2.76 times, and puts the shares, at $69.82 at the time of writing, on a dividend yield of 2.70%. With such a solid brand name, and a good track record of increasing dividends the company is a good DRIP target for investors. Its scheme requires only one share to qualify, and allows investments from $50 to a maximum of $250,000 annually. Fees for dividend reinvestment are 5%, though capped at $2 + 3 cents per share. Fees for other investments are $3 + 3 cents per share.

The Boeing Company (BA) is one of the world’s leading commercial aircraft manufacturers, and a major producer of American and foreign military aircraft. Historically, dividends average about 30% of annual earnings, and its last year dividend of $1.68 was covered 2.7 times by its EPS of $4.53. The current dividend yield is 2.3%. With EPS set to rise to $5.30, the company has plenty of room to maintain its dividend or increase it over time. Although the minimum investment is $50, its investing fees are just $1 plus commission. An investor needs to hold only one share to qualify for its scheme.

Caterpillar (CAT): The world’s leading manufacturer of mining and construction equipment, Caterpillar operates through three business lines: Machinery, Engines, and Financial Products. The Engines business provides diesel, heavy fuel, and natural gas engines for Caterpillar machinery, which includes tractors, underground mining equipment and boring equipment, articulated trucks, and off road trucks. Its Financial Products division provides retail and wholesale solutions for Caterpillar machinery and engines. It has increased dividends each year since 2006, and its last year dividend of $1.84 is covered 3.06 times by an EPS of $5.63. Revenues are expected to increase by 18% between fiscal 2011 and fiscal 2012, with EPS increasing from last year’s level to $9.13. If dividends rise in line with this EPS growth, and coverage is maintained at 3 times, then Caterpillar holders could see dividends rising to over $3. Shareholders need only one share to qualify for the company scheme, and fees for dividend reinvestments are zero. Fees for extra investments are $2.50 + 3 cents per share.

Source: 7 Best Dividend Stocks to DRIP