7 Companies That Give Away Free Stock

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Some of the biggest financial scams in history had the simplest pitch: They offered something for nothing. Smart investors have learned to be skeptical of investments that make those offers.

But many companies offer a legitimate, simple way to get what amounts to free money. And it couldn't be easier to claim your share. All you have to do is buy stocks and reinvest the dividends.

Earning profits, drip by DRIP
Millions of investors have discovered the long-term power of dividends. By buying a stock and reinvesting the dividends into additional shares of the company, you'll see your total position in the stock soar over the years. For truly long-term investors, the gains from reinvesting dividends often dwarf what they realize from their original shares.

Nowadays, it's easy to reinvest your dividends. Several discount brokers provide the service at no additional charge, even when it involves buying fractional shares of stock.

But to find the free-money opportunity with dividend-paying stocks, you have to go back to an older method called the dividend reinvestment plan. It may seem old-fashioned, but these plans, also known as DRIPs, can help make your dividends work harder for you.

Here's how it works: After you enroll in a DRIP, you can arrange to have all your dividends reinvested in shares every quarter. DRIPs typically have rules that determine the per-share price you'll pay on those reinvested dividends. That makes DRIPs extremely convenient because the reinvestment happens automatically.

But even better, some DRIPs give you a discount on the shares you purchase through reinvested dividends. Before you get too excited, the discount usually is fairly small -- between 1% and 5% of the dividend amount. But the discount still represents money that you're saving versus going out and buying the shares yourself -- and even brokers that offer dividend reinvestment services of their own won't give you those discounts.

Who's giving away the free money?
Obviously, not every company offers these discounts. But many companies do. Here's a sample:


Current Discount Available on Reinvested Dividends

Aqua America (NYSE: WTR  ) 5%
Piedmont Natural Gas (NYSE: PNY  ) 5%
Pengrowth Energy (NYSE: PGH  ) 5%
Health Care REIT (NYSE: HCN  ) 2%
Penn West Exploration (NYSE: PWE  ) 5%
Omega Healthcare (NYSE: OHI  ) 1%       
Toronto-Dominion (NYSE: TD  ) 1%

Source: Company investor relations.

Why would companies like these let you buy shares at a discount? One reason is that encouraging dividend reinvestment saves companies the expense of cutting checks for small investors. If a DRIP discount encourages you to reinvest those small amounts every quarter, then the company benefits from lower costs.

Another reason is that the move can generate demand for shares without costing very much. Because large institutional investors aren't going to accept the rules and conditions of a DRIP -- rules that encourage long-term investment over short-term liquidity -- it's not as though the company has to worry about hedge funds or other massive investors using DRIPs to siphon millions of dollars from their coffers.

What's the catch?
DRIPs can be very useful tools, but they do have limitations. For one thing, many DRIPs require you to already be a shareholder of the company to participate. That means that you have to find a way to buy your initial shares of stock before taking advantage of the DRIP. That used to be prohibitively difficult, but again, discount brokers and commissions of $10 or less make buying those first shares a lot less painful for your pocketbook.

Also, some companies charge fees to participate in their DRIPs. So don't assume that any DRIP is automatically a good deal -- even if it offers a share discount on reinvested dividends -- until you check the plan's fees. In some cases, those fees could partially or even completely offset any benefit from a discount.

For the most part, though, DRIPs offer a great way to help you build up a substantial position in dividend stocks. The ones that give you free money make the value of compounding even sweeter over the years.

Discounts are great, but you still want to make sure you have the best dividend stocks in your portfolio. We've put 11 of the strongest in this free special report from The Motley Fool; with thousands of readers having already discovered them, you shouldn't wait another minute to find out about them.

Editor's note: A previous version of this article included a company that has a discount DRIP in place but pays no dividends at this time.

Fool contributor Dan Caplinger wishes he could buy all his shares at a discount. He doesn't own shares of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Health Care REIT, Piedmont Natural Gas, and Aqua America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy doesn't think you're a drip.

Read/Post Comments (0) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1730137, ~/Articles/ArticleHandler.aspx, 5/28/2016 8:03:00 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 10 hours ago Sponsored by:
DOW 17,873.22 44.93 0.25%
S&P 500 2,099.06 8.96 0.43%
NASD 4,933.51 31.74 0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/27/2016 4:04 PM
HCN $69.27 Up +0.34 +0.49%
Welltower CAPS Rating: *****
OHI $31.88 Up +0.36 +1.14%
Omega Healthcare I… CAPS Rating: *****
PGH $1.74 Down -0.09 -4.92%
Pengrowth Energy T… CAPS Rating: ***
PNY $59.96 Down -0.04 -0.07%
Piedmont Natural G… CAPS Rating: **
PWE $0.69 Down -0.02 -2.21%
Penn West Petroleu… CAPS Rating: ***
TD $44.20 Down -0.16 -0.36%
The Toronto-Domini… CAPS Rating: ****
WTR $32.32 Up +0.06 +0.19%
Aqua America CAPS Rating: ****