how a direct stock purchase plan dspp works
a dspp allows individual investors to establish an account in which to make deposits for the purpose of purchasing shares directly from a given company the investor makes a monthly deposit usually by ach and the company applies that amount toward purchasing shares each month the plan purchases new shares of company stock or fractions of shares based on the money available from deposits or dividend payouts if any this mechanism makes it easy and automatic to slowly accumulate shares from a given company because these plans often have very low fees and sometimes no fees it makes dspps an inexpensive way for first time investors to enter the financial markets the minimum deposits for participating can range from as little as 100 to 500 perhaps the most common means of direct investment is dividend reinvestment which is the act of using one s dividends to buy more shares in the same company for companies that pay dividends you can set up a dspp to purchase the shares automatically and then reinvest any income payments through an optional dividend reinvestment plan drip drips allow investors to reinvest their cash dividends into additional shares or fractional shares of the underlying stock on the dividend payment date one drawback of a dspp is that the shares are rather illiquid it is difficult to re sell one s shares without using a broker as a result these plans generally function best for investors with a long term investment strategy direct stock purchase plans dspps and the issueras much as dspps can benefit investors they also can be worthwhile to the company that offers them dspps may bring in new investors who otherwise might not have been able to invest in the company moreover a dspp can provide a company with the ability to raise additional funds at a reduced cost companies that offer dspps usually cite information about the plans on their websites under the investor relations shareholder services or frequently asked questions faq sections here you will find details about account minimums investment minimums any fees applicable to their offerings trading details and the like the securities and exchange commission sec regulates a dspp s activity just as it does a brokerage s activities so although the mechanism for investing in dspps is slightly different from going through a broker the risks of buying stock are equally present regardless of how the stock is purchased limitations of direct stock purchase plans dspps dspps were seen as a pretty sweet deal in the early days of internet investing because you still had to pay significant trading or management fees to full service brokers if you wanted to buy stock however as online investing has become cheaper over time some of the original positive factors of dspps have faded for example an often cited advantage of dspps is that shareholders do not need to maintain physical certificates as proof of purchase an agent registers dspp transactions directly onto the company s books today however this benefit is practically moot because most stocks are kept in electronic form in a broker s computer system which is known as in street name in other words paper certificates have well nigh disappeared anyway thus while the concept of dspps may remain appealing they are no longer quite as functional in today s reality 