I’ve been regularly contacted by readers who want to invest some of their money specifically in the stocks of an individual corporation for various reasons, mostly relating to people finding companies that match their personal values.
For most individual investors, there are really two options to follow when buying stocks of a specific company: DRIPs or via a brokerage. My personal preference is generally the DRIPs, though brokerages do have some advantages. Let’s look at both.
DRIPs, or dividend reinvestment plans, are plans offered directly by some companies that enable you to buy a small number of shares of a company’s stock, then have the dividends from these shares constantly used to buy more shares until you’re ready to sell them. These are nice for people who want to buy and just sit on the stocks for a very long time, contributing a small amount of money each month to buy more shares. Each time the company pays out a dividend, this money is used automatically to buy more shares in that company. DRIPs are incredibly effective ways for people to contribute a little bit of money each month and build up a lot of stock in a specific company they believe in.
The fees on DRIP plans vary hugely, and this is the reason that it’s difficult to offer a blanket “recommend.” Some of them charge a fee every time you buy more stocks; those are usually not worth your time. If the company you want to buy into seems to charge a lot of fees, don’t bother with a DRIP from that company. On the other hand, if you don’t see any fees – particularly no fees on regular, monthly purchases – a DRIP might be the best choice for an individual investor.
Brokerages, like Charles Schwab, are a bit more complicated, but if you’re trying to buy money in a company that has an expensive DRIP, they might be a better route if you’re careful. Generally, unless your brokerage is giving you a few fee-free trades a month, you’re going to have to pay each time you buy into that company – this is the real disadvantage of many brokerages. If you’re like me and just want to buy into a specific company perhaps once a year with a large lump sum and want any dividends to just pay out into your savings account, then a brokerage might be the best bet. However, I only went this route because the DRIP plan for the single company I wanted to invest in wasn’t particularly good.
The best way to do this is to open an account with your brokerage of choice (there are a LOT of options out there, put some money in that account, and then execute a “limit” order for that stock. A limit order lets you specify the price you want to buy at – if you do a market order, you’ll just get the lowest price that someone happens to be selling at the moment, which is often higher than the current price of the stock. I usually put in a limit order for a bit below what the stock is currently trading at – a quarter of a point or so. Once you own the stock, just sit and wait.
I generally save up the money in a savings account that pays 5% and do a single “buy” each year into specific stocks, then I hold them and watch the company diligently. As long as I still like the company and how their business is doing, I hold. If something changes (and it hasn’t yet so far), then I will sell everything I have in one “sell.” This approach greatly minimizes the brokerage fees and in my case is quite a bit cheaper than the DRIP for the same company.
In a nutshell, if you’re interested in just one specific company to invest in, research their DRIP plan. If there doesn’t seem to be many fees, get involved with that plan. If the fees are excessive (basically, if the fees cost you more than 2% of the money you’re investing), look at a brokerage, especially if the DRIP says you have to pay on each reinvestment.