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These 3 Dividend Stocks Offer Shares at a Discount

By Dan Caplinger - Feb 24, 2018 at 10:41AM

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Find out how a dividend reinvestment plan can help you.

Dividend stocks can help investors benefit from the power of compounding. By reinvesting dividend payments to purchase additional shares of stock, you'll see the amount of income you receive grow over time, building on itself and creating a positive-feedback loop that can eventually produce huge amounts of income.

Many brokers offer the ability to reinvest dividends in additional shares. However, in some special situations, using a dividend reinvestment plan (DRIP) directly from the company itself can give you the ability to get a discount on the shares that you purchase with your dividend income. In particular, Aqua America (WTRG 3.47%), Franco-Nevada (FNV -4.29%), and Student Transportation (NASDAQ: STB) are three stocks that you can buy more cheaply through dividend reinvestment than you'll get on the open market.

Stock

Current Dividend Yield

Discount on DRIP Purchases

Aqua America

2.4%

5%

Franco-Nevada

1.3%

3%

Student Transportation

7%

3%

Data source: Yahoo! Finance, company investor-relations websites.

Aqua America

Many dividend investors turn to utility stocks for reliable streams of dividend income, and the water-utility area is one that features constant demand for customers and dependable levels of earnings. Aqua America is one of the biggest water utilities in the U.S. and it gets more than 97% of its revenue from its regulated water-utility business.

Aqua America has also moved into the potentially lucrative area of providing water to natural gas exploration-and-production companies, whose needs for water for hydraulic-fracturing operations have provided demand for services from utility companies with the expertise and capacity to provide it. The joint venture in which Aqua America participates has struggled due to poor performance in the energy sector in recent years, but a bounce could make that part of the business more lucrative.

Aqua America features a dividend yield of 2.4%. Under the company's current plan, investors can participate in its dividend reinvestment and direct stock purchase plan and have cash dividends reinvested in additional shares of stock at a 5% discount. With no commissions or trading fees for purchase and the ability to own fractional shares, investors can be assured that all of their funds go toward purchasing stock.

Worker with hard hat probing a water treatment plant collection pool.

Image source: Aqua America.

Franco-Nevada

In the precious-metals arena, Franco-Nevada offers an unusual way to profit from mining activities. Franco-Nevada isn't a miner, but it provides financing to mining-company clients, obtaining streams of produced gold, silver, and other metals in exchange for the capital that they provide. More recently, Franco-Nevada has started to diversify away from its formerly exclusive emphasis on precious metals to boost its exposure to oil and gas interests, purchasing royalties on energy production in exchange for upfront capital.

Franco-Nevada's current dividend yield of 1.3% might not look all that impressive, but the streaming specialist has boosted its annual payouts every year for a decade. It's only the huge gains in the stock over that time that have kept its yield down. Moreover, participants in the company's dividend-reinvestment program can get a 3% discount on the shares they purchase with their dividend income. That could help produce even greater gains for long-term shareholders who believe in the mining financier's prospects.

Student Transportation

One constant in the education world is the need for school buses, and Student Transportation offers managed and contracted school-bus services, as well as special-needs transportation and charter services for students and educational institutions. The company stands out as one of the rarified set of stocks that pay monthly dividends to their shareholders, and its current yield of more than 7% reflects the reliable demand from Student Transportation's public-sector clients.

Unlike some dividend reinvestment plans, the Student Transportation plan technically requires U.S. shareholders to be institutional accredited investors in order to participate. However, the website urges shareholders to contact brokers in order to get the benefits of participation, which currently include a 3% discount on shares purchased with reinvested dividend income.

Get dividend discounts

It's important to understand that being able to invest dividends for discounted shares doesn't justify investing in a stock that you don't believe in. But if you like the company anyway, picking up a discount on shares by reinvesting dividends is a great way to make your investment dollars work a little bit harder for you. Take a look at the companies you like, and see if they offer their own discounts through dividend reinvestment plans.

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Stocks Mentioned

Essential Utilities, Inc. Stock Quote
Essential Utilities, Inc.
WTRG
$47.44 (3.47%) $1.59
Franco-Nevada Stock Quote
Franco-Nevada
FNV
$169.32 (-4.29%) $-7.59

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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