3 Stocks You Can DRIP for Free

Source: LadyDragonflyCC.

Dividends make up a substantial portion of stock market returns. Since January 1988, the S&P 500 delivered a total price return of 7.74%. Including reinvested dividends, the annual return rockets to over 10%, according to an S&P 500 total return calculator.

The point is that over the long haul, small amounts of money add up. Here are some bank stocks you can buy today -- with no costs or commissions -- to hold for the long haul in a dividend reinvestment plan.

Fee-free bank stock DRIPs
A dividend reinvestment plan allows you to purchase shares directly from a company, and automatically make partial share purchases with the dividends you receive. These companies make it easier for individual investors to make direct investments, waiving -- or paying -- fees to make sure the average Joe has just as much access to their stock as big institutional investors.

Bank of America is the largest bank on the list, with a balance sheet topping $2.2 billion in assets. The company has seen its fair share of problems in recent years, including large mortgage lawsuits and a weak market for its lending businesses. However, going forward, its wide deposit base could propel its bottom-line earnings power.

Working out legacy problems at Bank of America is the company's first priority. The cost of litigation and mortgage losses cannot be understated. B of A has set aside a total of nearly $20 billion for mortgage losses. Simply avoiding problematic mortgages and underwriting in the future would greatly drive earnings. As Bank of America nears and exceeds new capital requirements, it should be in position to increase dividends and repurchases to return cash to shareholders.

SunTrust Banks is an Atlanta-based regional bank that operates in several southern states. After exiting TARP and turning profitable in 2011, the company has worked to lower its funding costs and grow net interest margin -- or the spread between interest income and interest expenses plus reserves for losses.

SunTrust's asset mix continues to improve. Nonperforming loan fell to less than 1% of all loans in the most recent quarter, with charge-offs falling to 0.59% of all loans, a big improvement over charge-offs of 0.76% in the prior quarter. A combination of rising rates and cost-cutting programs should grow bottom-line profits. The bank hopes to slash costs by closing branches and laying off employees. Further cuts could help the bank cut costs without losing its core deposits.

Finally, Bank of New York Mellon is one of the largest custody and servicing banks in the world. The company stores capital for large companies and investment funds, generating earnings from the float and key services like bookkeeping and back-office outsourcing. It also has a promising asset management division that oversees $1.4 trillion from institutional investors.

Bank of New York Mellon's earnings power is directly related to short-term interest rates. As a custodian of client accounts, it invests primarily in AA- or better investment securities, which provide very little in the form of income in a low-rate environment. Rising rates allows for increasing net interest margin.

The Foolish bottom line
After recovering from the 2008 financial crisis and working through a low-rate environment, well-capitalized banks will likely deliver larger dividends and share repurchases to shareholders. A fee-free DRIP is the best way to make slow and steady purchases of some of the best dividend-paying stocks on the market.