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How to Buy Stocks Online Without a Broker – Direct Stock Purchase Plans

Do high brokerage costs deter you from investing in stocks of financially stable, profitable companies?

Believe it or not, stocks in some of America’s most profitable companies can be bought without opening a brokerage account – in other words, sans commissions – thereby enabling you to keep more of your hard-earned money. But you wouldn’t know this if the mainstream financial media is your only source of investing information.

Buying Stocks Without Using a Brokerage

Once companies list on a stock exchange, they employ the services of a transfer agent, who handles all administration related to share transactions – most listed companies use Computershare to provide these services. And one of the many services Computershare provides is the administrating of direct stock purchase plans for companies who want to sell their shares to the public without engaging a stockbroker.

A direct stock purchase plan allows you to buy shares of a company through its transfer agent instead of through a broker. In essence, you cut out the middleman and save yourself a pretty penny in the process. Not all companies listed on the stock exchanges offer these plans, but major industries are represented by a range of participating companies, giving you ample room to choose.

Features of Direct Stock Purchase Plans

  • Minimum investment amounts are variable, and can be adjusted to meet your needs. Typically, they range between $25 and $2,500.
  • Payments can be made by check, automatic bank debit, or a combination of both.
  • You can schedule weekly or monthly purchases, which allows you to dollar-cost average and potentially reduce risk.
  • Plans allow you to invest in small amounts, instead of by number of shares. If your purchase amount doesn’t buy you a full share, you get fractional shares, which still earn dividends.
  • Dividends can be reinvested.
  • The plans are cost effective, at low or no cost, if the company pays the fees.

Fees are charged in all plans. Generally speaking, fees are for:

  • Setting up the account, which can cost between $5 to $20.
  • Buying shares. Transaction fees range from $0.03 to $0.10 per share.
  • Reinvesting the dividends. Charges usually are 5% of the amount invested up to a maximum of $2.
  • Selling shares. In most cases, a transaction fee of $15 plus $0.12 per share sold is levied.

However, there are some companies that don’t charge fees for stock purchases and, in some cases, don’t charge account set-up and dividend reinvestment fees either.

Direct Stock Purchase Plans

Companies With Direct Stock Purchase Plans

Listed below are five well-known companies that have the most active direct stock purchase plans:

  1. The Coca-Cola Company. If you are a new investor, you can either invest a one-time amount of $500, or 10 separate automatic purchases of $50. A once-off set-up fee of $10 is deducted from the initial investment, plus a $0.03 processing fee for every share bought. Further purchases are set at a minimum of $50. Total stock purchases are limited to $250,000 per year. Reinvesting the dividends incurs a charge of 5% amount invested up to a maximum of $2.
  2. Exxon Mobil. For new accounts, a minimum one-time investment of $250 is required. Alternatively, an ongoing automatic investment of $50 with a minimum of five consecutive payments gets you on board. A nice feature of this plan is  that there are no fees for account set-up and share processing. Also, there are no fees for dividends that are reinvested. Total stock purchases are limited to $250,000 per year.
  3. Johnson & Johnson. This plan is quite popular for many reasons. A mere $25 gets you started on this plan, which is the lowest that I found. And it gets better: There are no account set-up fees and share processing charges, and further stock purchases start at $25. Dividends can be reinvested, no fees are payable, and the maximum purchase is restricted to $50,000 per year. If you’re starting off with very little money, this is the one plan you want to get.
  4. Walmart. A minimum of $250 is required, or 10 ongoing automatic payments of $25. The initial set-up fee of $20 is high compared to other plans, and the $0.05 share processing fee is above average. Thankfully, if you reinvest the dividends, there are no fees incurred. Purchases are limited to $150,000 per year.
  5. Altria Group. A minimum one-time investment of $500 is required; alternatively, an ongoing automatic investment of $50 – of which there must be at least five consecutive purchases – is required. Initial setup cost is $10, and a share purchase processing fee of $0.03 per share is charged. Dividends can be reinvested, incurring charges of 5% of the amount invested, limited to $3. The maximum purchase is $250,000 per year.

Final Word

Whenever you choose any investment, analyze the company and the industry carefully in terms of profitability, future outlook, and whether the investment is in line with your goals and risk tolerance. And though investing via direct stock purchase plans can be more advantageous than going through a broker, realize that you may miss out on your broker’s advice. Remember, this avenue is best followed by those who are willing to do the research and be their own financial advisor.

Lastly, don’t forget the age-old admonishment: Never put all your eggs in one basket. If you choose to invest in individual companies, be sure to invest across a range of industries for a diversified portfolio.

Do you hold company shares via a direct stock purchase plan? What other tips can you share?

Premo Sewnunan
Premo views investing as the science of making money. He has four years experience in stock investments, and shares his insights as a way to give back and contribute. He lives in Durban, South Africa and enjoys the great year-round weather.

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