My first investment vehichle: DRIPs (Part 1)

These are currently the only investments that I have at the moment which I can actually touch and use before I turn 59 1/2. Although, I still certainly consider them long-term investments. As I posted previously, I started 2 DRIPs while in graduate school. I did so because they allowed me to buy fractional shares of large companies. So, for someone with little cash flow like a grad student, it was an easy way to start saving for the future that would hopefully produce better results than a savings account or CD in the long run.

So, what exactly is a DRIP? A Dividend ReInvestment Plan allows an investor to buy fractional shares of a company through the reinvestment of dividends with no commissions and usually the option to make cash purchases of fractional shares as well (hopefully with little or no commissions on the trades). To start a DRIP you normally have to purchase at least a single share of the particular stock through a brokerage to be eligible to participate in a DRIP. I have not personally used this method.

In my case, both of the DRIPs that I participate in are managed by ComputerShare (previously Equiserve). The ComputerShare allows you to directly enroll if you are not currently a shareholder with a minimum initial investment for some plans ($500 to start a Pfizer plan). Kimberly Clark currently requires you to already be a shareholder, so you would have to go to a brokerage. I circumvented this by using a service provided by The Moneypaper. If you become a member, they will provide you with the means of enrolling in certain DRIPs. I think it ended up costing me about $35-$40 in fees to enroll in the Kimberly Clark DRIP back in 2001. For me, this was easier than having to deal with a brokerage and I believe the fees ended up being similar if not better.

So, how did I end up choosing Kimberly Clark and Pfizer. Well, the biggest factor in terms of how DRIPs are run was that they both had reasonable fees. And to me a reasonable fee is FREE.

1. Automatic Investment Fee : $0
2. Optional Cash Purchase Fee: $0
3. Dividend Reinvestment Fee: $0

Additionally, they both have decent sales fees. Kimberly Clark charges 5% of the total sale OR $10 maximum and Pfizer charges a flat $15. Since I plan on keeping both of these plans long-term and selling huge chunks or all the my shares at once, these fees will have negligible effects on my sales.

An example of a company that I might be interested in, but their plan sucks in terms of fees is IBM.

1. Initial Setup Fee: $15
2. Automatic Investment Fee: $1
3. Optional Cash Purchase Fee: $5
4. Dividend Reinvestment Fee: 2% up to max $3

They might as well tack on a fee for wiping your butt. I just don't see the sense in investing in a plan like that if you're trying to use small amounts of cash (say $25-$100 per month) to invest. In this case, if you autoinvested $100 per month, you would end up paying 6% in fees on each cash purchase. You'd have to make a helluva return to make that up. Granted, if you're investing a lot more money per month, it wouldn't matter as much. But, I would still prefer a plan without such headaches.

The other big factor in choosing the 2 companies were that they are both large and well-known.

I initially sought out the Kimberly Clark DRIP because of a job interview I had with them after graduating from undergrad (even though I turned down their offer and went to grad school). I was simply impressed with how well they took care of their employees. If I hadn't of gotten such a good offer to go to grad school, I might be in Wisconsin now helping to make diapers.

I chose Pfizer for diversification (pharmaceuticals) and their long track record as a strong company.

I wasn't looking to get rich quick off of either of these companies. So, I didn't sweat the details of each company like insider transactions and analyst opinions. I basically went with the fact that they were both long-running companies and leaders in their respective industries.