Many brokers are now offering what they refer to as a "Drip," in which they will reinvest your dividends, usually at no charge. However, these "Drips" are significantly different from company-sponsored Drips such as those we hold in the Fool Drip port.
If you elect to participate in your broker's "Drip" for a stock you hold in your brokerage account, be aware that you are not enrolling in the company's dividend reinvestment plan. Stocks held in a brokerage account are not eligible for company-sponsored Drips since they are held in the broker's name rather than in yours. Shares must be registered in your name if you wish to participate in the company's Drip.
Brokerage "Drips" usually do not invest in fractional shares. Instead, the dividends will accumulate in your account until the sum required to purchase a whole share is present. With a company-sponsored Drip, however, your dividends are immediately invested in the stock.
Last, but certainly not least, brokerage "Drips" do not provide the option of making optional cash purchases (OCPs) of stock. This is the ability to add regular, small amounts to a position, taking advantage of dollar cost averaging, for little or no commissions. Any additional purchases of stock in a broker's "Drip" would incur the usual brokerage commission.
If you're interested in reinvesting dividends only and do not wish to purchase shares in whole-dollar amounts on a regular basis, then brokerage "Drips" are an easy and generally inexpensive method for doing so. If, however, you want to take full advantage of the benefit of Drip investing, you'll want to be sure you're enrolling in the company-sponsored plan as a shareholder of record.
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