Frequently, automated purchases of stock through Drips is not a regular, viable option for many investors because the money isn't always available. However, this does not mean that to participate in a Drip you must resign yourself to making out checks every time you wish to buy more stock. You can automate the process by using electronic bill-paying software or banks, rather than the Drip plan's automated clearinghouse buying service.
However, this system doesn't work for everybody. Suppose your income is not predictable on a regular basis (such as if you are in business for yourself), or your income varies with the season (like construction work). An automated payment plan can cause some serious problems if the money isn't in the checking account. So, does it condemn you to sitting down and writing checks every month?
Fortunately, it doesn't.
Electronic Drip-Buying Options
There are personal finance programs, such as Quicken and Microsoft Money, that allow electronic bill-paying (and more and more banks are offering electronic bill payments online, too). I've had Quicken for years, and I use it to do my Drip accounting anyway (it takes the hassle out of figuring cost bases for purchases). There is a catch, though: Your bank has to allow for this.
The bank I chose two years ago told me that their accounts interacted with Quicken, but what that meant is that you could download transactions in the Quicken format. The bank did not allow bill-paying unless you used the bank's proprietary software... and using it made it even more difficult to keep my numbers current in Quicken. So, until recently, I've done without this feature. Right now I'm switching to a new bank, though (and as a warning, this is a hassle if you have any automated bill payments).
So, let's say you find a bank that allows electronic bill-paying through Quicken or Microsoft Money. What should you do then? First, try making a small payment to your Drip via the electronic method to assure the transfer agent will accept it. With electronic bill payment, the agent is often sent a check from your bank with your account number on it. Unfortunately, this may not suit all Drip transfer agents, since they often want their own form to come with the payment.
In my experience, if they don't accept the payment they will return the check to you and you need to return to your normal routine. Once you find that the payment will be accepted, you can use the calendar feature in your software, if you use Quicken or Money, to schedule it on a regular basis. Or, you can schedule it through many online banks, too.
Benefits of "External" Electronic Payments
The benefits of purchasing Drips this way can include:
1) You can schedule an automatic payment, but you can easily tweak it or change it if certain months don't work out (more easily than you can change an automatic Drip plan payment sponsored by the Drip itself).
2) You can change the amount of money sent, easily and ahead of time, if you want to buy more on a set date, or less. Again, this is hard to do via a Drip's automatic payment plan.
3) Another advantage over some Drip plans is that you can avoid the transaction fees that often occur with automated payments sponsored by the Drip.
While electronic bill-paying programs don't force you to contribute to your Drip plans, they do offer many benefits -- including flexibility -- that can be quite helpful depending on your source of income. For many of us, electronic bill-paying may be a better option than an automated payment program offered by the Drip itself.
On another subject, I wrote an article a couple weeks ago on Nortel's (NYSE: NT) Open IP Environment. As I expected, some (well, actually, a lot of) disagreement arose as to what Nortel promises with its product. I will be talking to Nortel's competitors at Cisco Systems (Nasdaq: CSCO) this week, and I'll include some of the responses I got from all of you, too. To paraphrase Mark Twain, the reports of the death of the hardware router are greatly exaggerated, according to Fools who wrote me. In fairness, I'll give them a forum too; I'm very interested in the counter-argument. Until then, stay Foolish!
Do you buy into your Drips with automatic investment programs offered by the Drips, or through outside electronic bill-payment systems? Which do you prefer and what advice can you offer?
P.S. TMF Jeff here. Please note that we purchased our initial five shares of PepsiCo (NYSE: PEP) at $45 per share plus a $15 certificate commission, giving us a cost basis of $48 per share. The stock certificate is being sent to us by the broker, and we contacted Bank of New York (800-226-0083) for Pepsi Drip enrollment forms, which they mailed. Many options exist for buying stock in certificate form at $20 or less, including Temper of the Times and several brokers, as were written about on the Drip Companies board two weeks ago by several Fools. We used American Express because a Drip Fool has an account there, making it convenient for us. Fool on!