Low costs and hassle-free service have made no-load mutual funds an investor favorite. Now along comes an idea only a broker could hate: no-load stocks.
For years, individuals have saved on broker commissions by buying stocks directly from public companies through dividend reinvestment plans (DRIPs). But in most of the nation's 900 DRIPs, only those who already own stock are eligible to participate. The exceptions--some 50 companies ranging from Atlantic Energy to U S West--have moved to open enrollment, allowing the public to make initial investments without paying a broker.
That change is the biggest of many afoot as DRIPs borrow popular features from no-load funds. Exxon's program, for instance, not only allows investors to buy their first shares at no fee but also lets them pick up additional shares through automatic bank-account withdrawals. Several plans, including Mobil's, offer dividend reinvestment for individual retirement accounts. And some, such as U S West, are allowing participants to invest weekly or monthly, rather than on the quarterly schedule once standard for DRIPs. At least half of all DRIPs will offer open-enrollment and other expanded services within five years, predicts Michael Foley, vice-president of First Chicago Trust, which handles the paperwork for 13 million shareholder DRIP accounts.
BIT BY BIT. That's not to say the plans are for everyone. Timing of trades is still a weakness: DRIP investors can't move fast enough to take advantage of day-to-day swings in stock prices. Some plans, particularly those operated by utilities such as Duke Power, are open only to customers or residents of service areas. And some are caving in to Wall Street's penchant for adding fees to cover administration; U S West charges $1 to reinvest dividends. Even the new push into open enrollment may eventually come at a cost, such as a charge of $15 or so to start a new account.
On the plus side, DRIPs allow long-term investors to accumulate large stakes while plowing in a little at a time. By committing a fixed amount regularly, participants benefit from dollar-cost averaging. That results in a lower average purchase price, since the fixed investment buys more stock when the price is low and less when it's high.
As companies make it easier to get started in DRIPs, observers predict a surge in interest. "Investors will go crazy for them," says Charles Carlson, editor of DRIP Investor ($59 a year; 219 931-6480) and author of Buying Stocks Without A Broker ($16.95; McGraw-Hill). Their brokers may go even crazier. By Greg Burns
TABLE: PARTIAL LIST OF NO-LOAD STOCKS Company Stock price* ATLANTIC ENERGY 609 645-4506 18 1/4 DIAL 800 453-2235 45 1/4 EXXON 800 252-1800 61 1/8 JOHNSON CONTROLS 414 287-3956 49 1/8 SCANA 800 763-5891 44 U S WEST 800 537-0222 41 DATA: DOW THEORY FORECASTS INC. *6/6/94