The Magic of Compounding

Focus: UTILITIES

The ability to withstand economic ups and downs coupled with locked-in growth make utility stocks ideal for dividend reinvestment (DRIP) and direct stock purchase (DSPP) plans, asserts Tim Begany, income expert and editor of Investing Daily's Utility Forecaster.

DRIPs allow investors to reinvest their cash dividends by purchasing additional shares or fractional shares on the dividend payment date.

DSPPs allow you to buy stock directly from a company or through a transfer agent. The greatest benefit of using a DSPP is the ability to avoid commissions by not going through brokers.

Here are our favorites, all of which are buy-rated:

American Water Works Co. Inc. (800-937-5449, $100 initial minimum investment)
Atmos Energy Corp. (800-543-3038, $1,250)
CenterPoint Energy Inc. (800-231-6406, $250)
CMS Energy Corp. (855-598-2714, $250)
Dominion Resources Inc. (800-552-4034, $40)
Duke Energy Corp. (800-488-3853, $250)
Eversource Energy (800-999-7269, $500)
NextEra Energy Inc. (888-218-4392, $100)
NiSource Inc. (888-884-7790, $250)
SCANA Corp. (800-763-5891, $250)
Southern Company (800-554-7626, $250)
Verizon Communications Inc. (800-631-2355, $250)
WEC Energy Group Inc. (800-558-9663, $250)
Xcel Energy Inc. (877-778-6786, $250)
Aqua America Inc. (800-205-8314, $500) and AT&T Inc. (800-351-7221, $500) also offer IRAs at an additional fee, in Aqua’s case $45 per year.

The fees associated with many of these plans are structured in such a way that they’re generally best suited for investors who want to build a position in a stock through small, frequent purchases.

But investors should compare the cost of these plans versus a broker to determine which approach will be more cost-effective.

Those who prefer to make a large lump-sum investment will generally find it cheaper and more convenient to do so through a broker.

Also, some plans may require investors to already own at least one share of the company’s stock before they’re eligible to participate.

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