I was curious what everyone's thoughts are on using a DRIP with individual equities?

I have a small UTMA setup for my son with a portfolio of dividend paying blue chips. The problem is that it is small and even $8 commissions take a bite of any new purchases.

Generally, I'm against DRIPs for individual stocks since you don't get to pick your entry points, and may be over-paying for the shares. Also, with an account so small it may be several years before all those fractions add up to a whole new share (which can be satisfying to see).

On the other hand, I help out a friend with taxes every year and 40 years ago his father bought a handful of blue chips that have grown into a massive portfolio through appreciation and dividend reinvestment. When he retires in a few years the dividends alone are going to fund most of his living expenses.

Would someone please clarify what the op is saying, I'm confused.

The OP has opened up a UTMA (Uniform Transfers To Minors Act) account for his son. This means he's basically opened up an a custodial account, since the boy is too young to legally own an account himself.

Within that account, he has opened up several DRIP (dividend reinvestment program) accounts. Those are accounts set up directly with a company to buy their stock. As you might expect from the name, the dividends are reinvested into additional stock instead of being disbursed to the shareholder in cash.

The nice thing is that it's a relatively painless way for compounding to do its work (set it and forget it). The benefits can potentially be quite high. The OP has already outlined the drawbacks, which are many.

JD's GRS post on the July 23rd, 2008 contained a nice little intro to DRIPs.

I don't like them for the reasons you've already outlined. I've got better ways to grow my money.

There are alternatives, which are outlined in this article. I don't use any of them, but they're something to consider.

Vintek got it right, except I'd be using the DRIP feature Fidelity offers (that is where the UTMA is), instead of directly with each company.

Another problem with using DRIP in a taxable account is dealing with the realized gains when they eventually come. Potentially, four very small purchases every year with each dividend.

Why don't you use another company instead of fidelity? Why don't you open a DRIP with the company you intend to invest in and get with a company like compushare (What Compushare does is provide direct stock purchase programs for hundreds of companies) ?

You do away with the 8$ commission fee ;until your sell.

My parents starting buying Wal Mart stock in the early 90's & set up a DRIP back then. It's worked out pretty well.

I've not seen a fee schedule for ComputerShare's commissions, but I have sold stock through them (stock grant from my wife's employer) and was disgusted by the large commission on the sale. Perhaps I've been spoiled by Vanguard. Any further grants will be transferred to Vanguard prior to selling.

I've never used them, but have heard bad things. I found this fee schedule on the web:

Quote:

An example of how investing with ComputerShare can incur excessive fees is the Altria’s (MO) investment plan which charges:

Initial Setup Fee: $10.00
Cash Purchase Fee: $5.00
Ongoing Automatic Investment Fee: $2.50
Per Share Purchase Processing Fee: $0.03

I found this fee schedule for ComputerShare's Intel DRIP (I also saw the schedule for the Verizon DRIP which varied slightly). If I'm doing Dividend Reinvestment, I'd much rather do it within a low fee brokerage account.

Wow. Just wow!

At least there is no maximum fee they will charge.