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Robert Allan Schwartz
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I'm a computer programmer and teacher of computer programming. I am self-employed, and manage my own SEP/IRA and investments for retirement. I invest in companies that pay dividends, have paid dividends for many years, and have increased dividends for many years. I am willing to ignore periods... More
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  • DRIPs My Way 12 comments
    Apr 15, 2010 12:16 PM
    What if your goal, like mine, is to dollar-cost-average your way into a stock over a long time, reinvesting dividends along the way, paying as few fees as possible?
     
    What’s the best way to do that?
     
    The best way to do that has changed.
     
    But let me start at the beginning.
     
    It used to be that you had to buy one (or more) share(s) on the open market, before you could join that stock’s dividend reinvestment plan (DRIP). For example, Bristol-Myers Squibb (NYSE:BMY) required you to buy 50 shares before you could join their DRIP, but they changed that in 2007 [DRIP Investor magazine, vol. 16, no. 9, September 2007, p. 6].
     
    Needless to say, buying one share of a stock was expensive and difficult. Most brokers didn’t want to accept an order that small. The trading fee was high. You had to register that share in your name, not in “street name”, which required the broker to send you a paper stock certificate, which imposed another high fee.
     
    Better Investing (http://www.betterinvesting.org) had a Low Cost Stock Purchase Plan, in which you could purchase one share for a low price, but (a) you had to pay to join ($39/year), (b) the selection of stocks was limited, and (c) the Plan was discontinued in November 2007 (Better Investing magazine, vol. 57, no. 3, November 2007, p. 5).
     
    Then you began to be able to buy the first share online, usually via the transfer agent’s website. For example, for $1000 you could make an initial purchase of Regions Financial (NYSE:RF). For many stocks, the initial purchase was $500. Some stocks let you spread that $500 over 10 monthly purchases of $50 each.
     
    Some stocks, for example Bemis (NYSE:BMS), were served by a transfer agent, but there was no way to purchase the stock or access your account via that transfer agent’s web site.
     
    Some stocks that paid dividends had no DRIP; for example, Automatic Data Processing (NASDAQ:ADP), Eaton Vance (NYSE:EV), Expeditors International (NASDAQ:EXPD), Leggett & Platt (NYSE:LEG), and Schlumber (NYSE:SLB). I emailed ADP’s Investor Relations department in August 2006 and asked why they had no DRIP. Their response was, “We received your email about dividend reinvestment. As you know, ADP does not have a dividend reinvestment plan or direct stock purchase plan. This is due to the fact that most of our investors are very large, institutional investors. From what I have heard, there do not appear to be plans to change our programs at the present time. In order for a change to take place, it would require a decision from ADP's Board of Directors.”
     
    Some stocks had no monthly optional cash purchase (OCP) plan, making it difficult to dollar-cost-average; for example, Citigroup (NYSE:C), Illinois Tool Works (NYSE:ITW) [but they have one now], and Supervalu (NYSE:SVU). Citigroup’s web site’s section on investor relations has this FAQ:
     
    "Q: Is there a direct stock purchase feature to this DRP?
     A: No. For a variety of reasons, Citigroup has not elected to offer a direct stock purchase
    feature."
     
    I emailed Citigroup’s Investor Relations department in August 2006 and asked them why they had no OCP. Their response was, “Dear Shareholder: Thank you for your recent inquiry. We appreciate the opportunity to be of service to you. Unfortunately, only about 20% of all companies listed on US stock exchanges offer Direct Stock Purchase Plans. While we apologize for the inconvenience, Citigroup is among the 80% that do not offer this type of plan.”
     
    Some stocks have an OCP, but not via automatic funds transfer from your bank account to the transfer agent – you have to send them a check each month; for example, Abbott Laboratories (NYSE:ABT), Du Pont (NYSE:DD), Kimberly-Clark (NYSE:KMB), and Pitney Bowes (NYSE:PBI).
     
    Some stocks have an OCP via automatic funds transfer, but you can’t choose when during the month you want the withdrawal to take place.
     
    What are the fees of an OCP?
     
    Here is a sample of fees:
     
    To invest $100/month:
     
    Abbott Laboratories
    ABT
    $0.00
    Paychex Inc.
    PAYX
    $0.00
    Pitney Bowes Inc.
    PBI
    $0.00
    CVS Caremark
    CVS
    $1.00
    Deere
    DE
    $1.00
    Disney
    DIS
    $1.00
    Regions Financial Corp.
    RF
    $1.00
    Illinois Tool Works Inc.
    ITW
    $1.50
    Lincoln National Corp
    LNC
    $2.00
    Stanley Works
    SWK
    $2.10
    Air Products & Chemicals Inc.
    APD
    $2.61
    PPG Industries
    PPG
    $3.00
     
    To invest $50/month:
     
    3M
    MMM
    $0.00
    AFLAC Inc.
    AFL
    $0.00
    Aqua America
    WTR
    $0.00
    Bank of America Corp.
    BAC
    $0.00
    BB&T Corp.
    BBT
    $0.00
    Bemis Corp
    BMS
    $0.00
    Clorox Co.
    CLX
    $0.00
    Dow Chemical
    DOW
    $0.00
    Emerson Electric Co.
    EMR
    $0.00
    Exxon Mobil Corp.
    XOM
    $0.00
    Kellogg Co
    K
    $0.00
    Kimberly-Clark Corp.
    KMB
    $0.00
    PepsiCo Inc.
    PEP
    $0.00
    Pfizer Inc
    PFE
    $0.00
    RPM International Inc.
    RPM
    $0.00
    Staples
    SPLS
    $0.00
    Becton Dickinson and Co.
    BDX
    $0.02
    E.I. Du Pont de Nemours
    DD
    $0.03
    Alcoa
    AA
    $1.00
    Caterpillar Inc.
    CAT
    $1.00
    Coca-Cola Corp
    KO
    $1.00
    Colgate-Palmolive
    CL
    $1.00
    Diebold Inc.
    DBD
    $1.00
    General Electric
    GE
    $1.00
    Johnson & Johnson
    JNJ
    $1.00
    Johnson Controls
    JCI
    $1.00
    Medtronic Inc
    MDT
    $1.00
    Wells Fargo & Co.
    WFC
    $1.00
    Bard (C.R.) Inc.
    BCR
    $1.02
    Wal-Mart Stores, Inc.
    WMT
    $1.05
    Aetna
    AET
    $1.10
    McDonald's Corp.
    MCD
    $1.50
    Smuckers (J.M.)
    SJM
    $1.58
    Walgreen Co.
    WAG
    $1.63
    Hershey Foods Corp.
    HSY
    $2.00
    JP Morgan Chase
    JPM
    $2.00
    Lilly (Eli) & Co.
    LLY
    $2.00
    Marsh & McLennan
    MMC
    $2.00
    Merck & Co. Inc
    MRK
    $2.00
    Washington Mutual Inc.
    WM
    $2.00
    Avery Dennison Corp.
    AVY
    $2.03
    Campbell Soup
    CPB
    $2.04
    M & T Bank Corp.
    MTB
    $2.50
    United Technologies Corp.
    UTX
    $2.50
    Altria Group Inc
    MO
    $2.52
    Wrigley (William) Jr. Co.
    WWY
    $2.53
    Home Depot Inc.
    HD
    $2.56
    Lowe's Cos. Inc.
    LOW
    $2.58
     
    To pay $2.50 in order to invest $50 is the same as paying a 5% up-front sales load.
     
    Some companies even charge you to reinvest the dividends themselves.
     
    This is a family web-site, so I can’t tell you how I feel about the interactions I’ve had with the “customer service departments” of many transfer agents. I don’t want to be sued, so I won’t name names, but I will say that I’ve spent hundreds of unhappy hours on the phone with people in India and in the Philippines who think “good customer service” means reading their scripts to me without understanding what my problem is.
     
    I wanted a way to dollar-cost-average my way into stocks that didn’t pay dividends, or that didn’t have online access, or that didn’t have DRIP’s, or that didn’t have OCP’s, at the times of my choosing, at low fees, and I don’t want to have to speak with “customer service departments”.
     
    I finally found the answer.
     
     
    You can set up an account on their web site in just a few minutes. I set up an “Automatic Investment Plan”. I chose the “Advantage” plan, which costs $20/month, but you get 20 free automatic investments per month, so it really boils down to no monthly fee and $1 purchases. You can make additional purchases beyond that first 20 for $1 each.
     
    You can choose from over 6000 stocks. It doesn’t matter who the stock’s transfer agent is. It doesn’t matter if they have online access. It doesn’t matter if they don’t have a DRIP. It doesn’t matter if they don’t have an OCP.
     
    You control the frequency and timing of investments. From their web site:
     
    “Select the Set my own investment schedule option.
    You will be presented with an Investment Frequency option from which you must select one of the following:
    Weekly
    Monthly
    Twice a month
    One-time
    If you select Monthly, Twice a month or One-time, you will also be asked to choose your Investment Day.
    Investment days are always Tuesdays, excluding holidays
    If selecting Monthly or One-time, you can choose from the first four Tuesdays of a month
    If you select Twice a Month, you can choose between the first and third Tuesdays of each month or the second and fourth Tuesdays”.
     
    I did have one question for their customer service department, which took 8 emails over 22 days to fully resolve, so they have some room for improvement in that area.
     
    SmartMoney magazine compared 16 “discount brokers” including ShareBuilder (vol. 17, no. 6, June 2008, p. 78). ShareBuilder received only one star out of 5 for Banking Services, Trading Tools, and Customer Service, and only two stars out of 5 for Mutual Funds and Investment Products, and Research; however, ShareBuilder does exactly what I want them to, when I want them to do it, at the lowest fees I have found.
     
    There is icing on the cake.
     
    Join Costco (http://www.costco.com) first.
     
    It costs $50/year to join Costco as a Gold Star member or as a Business member. Costco will give you a $55 bonus for signing up for ShareBuilder, and will rebate to you 10% of your fees each quarter.
     
    It costs $100/year to join Costco as an Executive member. Executive members receive an annual rebate of 2% of their total purchases. Costco will give you a $55 bonus for signing up for ShareBuilder, and will rebate to you 25% of your fees each quarter.
     
    At least, that was true as of the date this was written (May 27, 2008) [content.sharebuilder.com/mgdcon/jump/par.../].
     
    I joined as an Executive Member. That 25% rebate means I’m paying 75 cents for each transaction.
     
    I’m in the middle of moving all my stocks from their transfer agents to ShareBuilder. I look forward to a long, happy, and prosperous relationship with ShareBuilder.
     
    Update as of April 15, 2010:
     
    I am still using, and very happy with, ShareBuilder.


    Disclosure: Long ADM, ADP, AFL, APD, AVP, AVY, BCR, BDX, BF.B, BMS, BRK.B, CAG, CAT, CB, CHRW, CINF, CL, CLX, COST, CTAS, DBD, DD, DE, DEO, DIS, DOV, EMR, EV, EXPD, FAST, FDO, FUL, GIS, GPC, GWW, HD, HNZ, HRB, ITW, JCI, JNJ, JWN, K, KMB, KO, LANC, LEG, LOW, MCD, MDT, MKC, MMM, MO, MON, NDSN, PAYX, PBI, PEP, PGR, PH, PNR, PPG, PX, RPM, SHW, SIAL, SJM, SPLS, SWK, SYY, TGT, UTX, VFC, WAG, WMT, WTR, XOM, YUM

    Disclosure: Long ADM, ADP, AFL, APD, AVP, AVY, BCR, BDX, BF.B, BMS, BRK.B, CAG, CAT, CB, CHRW, CINF, CL, CLX, COST, CTAS, DBD, DD, DE, DEO, DIS, DOV, EMR, EV, EXPD, FAST, FDO, FUL, GIS, GPC, GWW, HD, HNZ, HRB, ITW, JCI, JNJ, JWN, K, KMB, KO, LANC, LEG, LOW, MCD, MDT, MKC, MMM, MO, MON, NDSN, PAYX, PBI, PEP, PG, PGR, PH, PNR, PPG, PX, RPM, SHW, SIAL, SJM, SPLS, SWK, SYY, TGT, UTX, VFC, WAG, WMT, WTR, XOM, YUM
    Themes: DRIP, dividends
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Comments (12)
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  • dunkmaster
    , contributor
    Comments (338) | Send Message
     
    I use Foliofn and have for years. I really like them (more than some of my stock choices!!) They have an "unlimited" buying option that allows you to make as many small drips into as many companies as you like as often as you like. I think they charge about $300 per year for this service.

     

    I don't pay that though as I use their"cheap" plan that charges you $4 per trade (buy OR sell) and if you make 4 quarterly per year you pay no quarterly charges. The Quarterly charge is $15 so the math is pretty simple (making 4 trades costs you $1 more per quarter than making no trades!).

     

    The only other fee they charge is $25 per year for a Roth IRA. So my total fees for a year could be as low as $89 on an account that is mixed Roth and regular stocks. On a 6 figure portfolio that makes 16 trades per year your fee's for a year is less than 0.10%. Its hard to beat that. If you want to trade more frequently the $300 deal still makes the cost only .030%.
    26 May 2010, 12:21 PM Reply Like
  • mbkelly75
    , contributor
    Comments (4545) | Send Message
     
    I like FolioFN.com. A benefit that you did not mention is that they will reinvest any dividend for free if it is $1.00 or more. They will also let you buy $100 worth of a stock even though that makes a partial stock purchase with no problems at all so you can buy $100 of MCD even with a single share of MCD costing $66.75 today. 2 shares would pay you $1.10 that first quarter so you could reinvest for free.
    It is something to think about.
    7 Jun 2010, 10:49 PM Reply Like
  • Derek A. Barrett
    , contributor
    Comments (3534) | Send Message
     
    I'm also a huge fan of Folio as well. I keep my core holdings in it and am super happy with the service. It has literally saved me thousands in trading fees and given me access to diversify across great companies.
    8 Jun 2010, 12:17 AM Reply Like
  • dunkmaster
    , contributor
    Comments (338) | Send Message
     
    Since posting this comment 2.5 years ago I have opened a rollover IRA and bulked up my Roth IRA. Folio is still a great service and value. It is not for everyone but for me (a DIY investor) it works great. I think I have been with them for 10 years now.
    14 Nov 2012, 08:04 AM Reply Like
  • Derek A. Barrett
    , contributor
    Comments (3534) | Send Message
     
    Nice work dunkmaster ! I've actually moved a lot of funds from Folio since that time, so I can trade options, but I still have a large holding there.

     

    If Folio had options I would definitely consolidate everything there.
    19 Jan 2013, 01:30 AM Reply Like
  • David Fish
    , contributor
    Comments (7448) | Send Message
     
    NB,
    Good rundown on your experiences with DRIPs. I don't use Sharebuilder myself, but it could hold a slight advantage over paying $5 in some DRIPs...although I find that many of those charge less for online investing and I can minimize the impact by investing larger amounts less often.
    7 Jun 2010, 03:23 PM Reply Like
  • Matt Cilderman
    , contributor
    Comments (440) | Send Message
     
    Thanks for doing all this research. I have an acct at Sharebuilder and Tradeking, like TK a lot.
    19 Mar 2012, 03:02 PM Reply Like
  • AgAuMoney
    , contributor
    Comments (4430) | Send Message
     
    I came to the identical conclusion and have moved my individual DRiP and DPP accounts to ShareBuilder. I had been considering them for some time, and opened my first account about the time they got together with Costco (where I've had an executive membership for years).

     

    Now (mar.2012) the costco deal is even better. Instead of quarterly rebates you get a discount off the cost of each transaction.
    20 Mar 2012, 10:29 AM Reply Like
  • Stephen J Melnykevich
    , contributor
    Comments (1227) | Send Message
     
    I wonder if there will be any changes as ING is now owned by Capital One is it?

     

    I'm a sharebuilder user for Roth IRA, and online checking. Only issue with the ROTH IRA is that it does not allow me to determine my portfolio Dividend Yield.
    1 Oct 2012, 10:44 AM Reply Like
  • gordon smith
    , contributor
    Comments (3) | Send Message
     
    Does the Costco savings opportunity apply in 2013 (today) with Shareholder? It seems foliofn would be cheaper way to go. They handle the annual tax reporting very efficiently based on my experience. Does foliofn offer traditional DRIP accounts?
    24 Sep 2013, 09:27 PM Reply Like
  • AgAuMoney
    , contributor
    Comments (4430) | Send Message
     
    Shareholder? You mean Sharebuilder?

     

    I like the current Costco discounts with Sharebuilder. Instead of quarterly rebates they just discount off the top. Works better for me now. I think those discounts are not as good with 'gold' vs. 'executive' membership... With exec. I get about 25% discount on the 'automatic' investment fees and "real-time" trades are now $5.95. And they sent me a little token gift last Christmas. :)

     

    Probably with my combined balance I could get a pretty good deal at most any brokerage. But that is because they would be constantly trying to get more out of me and fighting off all those solicitations is wearisome.

     

    I do have a fairly significant balance also at Scottrade, primarily because they have a local office but they are also cost effective.

     

    Bottom line: Sharebuilder is cheap and works for me.
    25 Sep 2013, 10:17 AM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (12740) | Send Message
     
    Author’s reply » I don't know, but here's how to find out.

     

    ShareBuilder is now owned by Capital One.

     

    Go to http://www.costco.com, and search for "sharebuilder".
    25 Sep 2013, 08:53 AM Reply Like
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