What’s a DRIP?
A Dividend Re-investment Plan is a legacy, and somewhat historic plan, established by a publicly traded company that allows investors to invest directly into shares of the participating company equity holdings.
What’s the advantage of a DRIP plan?
DRIP plans are cost effective and in many cases do not charge a commission for purchasing shares of the participating public company.
What are the disadvantages?
- Estate planning nightmare: Upon death we have found great difficulty in finding, transferring, and proving ownership in DRIP plans.
- They are easily lost. We have had many situations where shares have been lost, especially in more mobile families.
- Selling shares can be extremely inefficient, and often times transactions are not made on a timely manner, leaving investors with a surprising transaction price.
- Splits, mergers, and buyouts make for complicated record keeping. Investors are often responsible for keeping, mailing back, or transferring changes in certificates relating to public company transactions.
- Tax basis is often not well recorded, making eventual sales cumbersome and time-consuming.
With the much lowered costs of transactions in today’s financial markets, we strongly advise investors to dust off their directly held stock certificates and Drip plans, and deposit them into their brokerage account. In our opinion DRIP plans are a cumbersome, less productive, often more expensive in the end, way of investing that had its merits many years ago, but like the buggy whip, is a thing of the past.
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