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Investing in stocks can be overwhelming if you have limited or no experience with the stock market. When I 1st started investing I had no experience at all, didn’t know where to start, and had limited funds to invest. I decided to invest directly with companies that paid dividends and had a DSPP (Direct Stock Purchase Plan) and also a DRIP (Dividend ReInvestment Plan). This is the Old School Dividend investing Strategy that I used and still works today. I recently started using the Modern Dividend Investing Strategy that I will discuss later.
Before I go any further, I want to disclose that I am not a financial adviser, tax expert, or other financial professional. The following advice and suggestions are just an opinion and what has worked well for me over that last 30 years.
What is a DSPP and DRIP?
A Direct Stock Purchase Plan or DSPP is a pan that lets you purchase shares of stock directly from the company or their 3rd party transfer agent. Two of the bigger transfer agents are Shareowner Online (where I purchase my Proctor and Gamble stock) and Computershare (where I purchase my ExxonMobil stock). Both of those links will take you directly to their sites and will list the companies they represent.
A Dividend Reinvestment Plans or DRIPs are company or 3rd party run plans that allow investors to automatically reinvest all or a portion of the dividend distributions.
Dividends are a payout of company profits to shareholders. Not all companies pay dividends, however, the ones that do usually disperse them quarterly (every 3 months). If you are not currently enrolled in a DRIP then the company will send you a check. To see your money grow faster, its better to reinvest the dividends to purchase additional full and fractional shares. Over time, you will see the number of shares you own keep increasing.
Old School Dividend Investing Strategy
The Old School Dividend Invest Strategy is the way I bought and reinvested dividend for years and still do this today. I would invest in a company such a ExxonMobil by purchasing directly through their DSPP. Here was the process:
1) Visit the Computershare website and print out the enrollment form.
2) Fill out the enrollment form (very simple, usually name, address, social security number, and if you want to enroll in the DRIP
3) Mail the enrollment form in with a check for the initial purchase. The minimum investment required was $250.
That’s it. Every 3 months I would get a statement showing the amount of dividends that were paid, how many shares of stock I had purchased, and my total value. The ExxonMobil statement also had a detachable order form in case you wanted to sell or purchase more shares.
My strategy would be to treat that statement as a bill and buy additional shares every 3 months. It is amazing how fast your holdings can grow over time.
Pros and Cons of the Old School Method
- Easy to enroll directly without using a broker
- 1000s of companies offer DSPP
- Less temptation to sell- its not instant and takes a while to get your money
- There is no diversity, you are reinvesting with the same company
- Lack of control, you never know the share price that you will be paying, you will pay what ever the price is on the day the company processed the sale
- Fees, most companies charge processing fees, enrollment fees, etc (although it may be less expensive than a broker)
Modern Dividend Investing Strategy
Today, with all the advancements in technology, the Old School Method is now starting to become obsolete. Online brokerages, internet only companies, and investment Apps have taken over the investing landscape. One such company is Robinhood, you can read my full review here.
Robinhood is a Free Stock Investing App that allows you to purchase shares of company stocks with no fees. To get started:
- Open an account with Robinhood- this involves verifying your identity and tax id.
- Fund your account- this is done by linking a bank account
- Download the Robinhood APP
- Start Trading
My current strategy is to purchase (4) dividend paying stocks such as Apple, Proctor & Gamble, ExxonMobil, and AT&T (these are just examples, pick any dividend paying stocks you like). I purchase the same dollar amount of each stock. If I started with $1000 I’d buy $250 of each company or as close as I can.
As the dividends come in, they show up as buying power in your Robinhood account. The dividends are not automatically reinvested. Then I will use those dividends to purchase the stock whose share price has declined the most. That way my average purchase price will be lower and I will be purchasing more shares at a better price. Sometimes I will use the dividends to further diversify my holdings by adding another company stock.
Pros and Cons of the Modern Dividend Investing Strategy
- Signing up and Funding an Investment Account is fast and easy
- Set the price you want to pay
- Fee Free Trading
- Diversity- can buy as little as one share of stock in as many companies as you want
- Trading can only be done by the APP or Online
- Dividend Reinvestment is not automatic
The Modern Dividend Investing and Old School Dividend Investing Strategy both are viable options to get started with stocks. I still use the Old Shool Method as I have for decades and it has never let me down and has created substantial passive income. I started using Robinhood recently and I love how easy it is and allows me to diversify my holding. For more information or have any questions, please leave me a message below.