‘Drip’ System Saves Broker Fees

If you make your own investment decisions and like the idea of saving the cost of trading fees, you should know about direct stock purchase plans.

These plans allow individuals to buy stock directly from companies that offer the program. That allows you to avoid a stockbroker--and brokerage fees--which can save you thousands of dollars over time.

Usually if you wanted to buy Coca-Cola shares, for instance, you would go through a stockbroker, who would charge a trading fee. However, Coca-Cola also offers a direct stock purchase plan.

If you are a shareholder who owns as little as one share, Coca-Cola will allow you to buy additional shares directly from the company. You send a check to cover the number of shares you want and the company will buy the Coke stock on your behalf. All trading fees and brokerage commissions are paid by the company.

Partly thanks to a regulatory ruling that has made it easier to offer these plans, there has been a steady increase in the number of companies that provide dividend reinvestment and direct stock purchase programs--better known as “drips.”

There are now more than 1,000 major companies offering the programs, according to Vita Nelson, publisher of the Moneypaper of Mamaroneck, N.Y. Her firm offers dividend reinvestment plan information and publishes the DRIP newsletter. Better yet, many of these companies have added attractive bells and whistles over the past few years, such as automatic monthly investment programs, IRAs, electronic funds transfers and investor discounts.

What’s the downside to drip investing? It’s still not as fast and convenient as trading through a broker.

Companies may set aside only one day each month when they buy and sell direct purchase shares on behalf of their shareholders. If your check is in the trustee’s hands on that date, you get the shares, if it’s not, you’ve missed out until the next month.

There’s usually no way to time your purchase to react to market swings. Likewise, you can’t schedule sales to get the most advantageous price. And it can often take a month or so to get your cash back when you do sell. (Each company has different rules on when trades are executed. You should check the rules before investing by calling the company’s direct purchase or dividend reinvestment division.)

Still, for buy-and-hold investors who know what they want and don’t want to pay trading fees to get it, it’s an attractive option.

Want a free list of companies with direct investment plans, including their phone numbers? The Moneypaper will send you one if you call (800) 388-9993.They provide the list free because they’re big supporters of drip plans, says Nelson. But, they’ll also send information on subscribing to the newsletter.

Final tax deadline

Procrastinators beware. Oct. 15 is your last chance to file a 1995 income-tax return with the IRS. If you don’t file on or before that date, you get hit with massive “non-filer” penalties that--each month--add 5% of the tax due, up to 25%.

(Technically, the federal income tax due date is April 15, but if you have a good reason, you can “extend” the due date into fall.)

Why do people wait this long to file? Some don’t get all their tax information soon enough, but others file late because they don’t have the money to pay what they owe, says Sidney Norton, president of the California Society of Enrolled Agents. But failing to file because you can’t pay is a big mistake, mainly because the penalty for not filing is 10 times worse than for not paying. So, get those returns in the mail in a hurry.

Keeping personal data private

Ever wonder where direct marketers get all sorts of private information about you--such as the amount of your mortgage and types of things you like to buy? Would you like to put a crimp in the free flow of your personal information?

MasterCard International has a free booklet for you, called “In the Driver’s Seat: Steering Your Consumer and Financial Information in the Right Direction.”

The booklet explains where salespeople get your name, what information they can get without your consent and how to opt out of direct marketing campaigns. To get a copy, call (800) 999-5136.

Consumer Checklist is a weekly feature that covers a range of pocketbook issues of interest to Californians. To contribute information about new legislation, products, services or surveys, write to Kathy M. Kristof, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053; or send e-mail to [email protected]