The Magic of Compounding

05/15/2017 2:50 am EST

Focus: STRATEGIES

Ari Charney

Analyst and Associate Editor, Canadian Edge and Personal Finance

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, explains Ari Charney, editor of 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.

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.

Here are our favorites, all of which are buy-rated, and will benefit from the long-term magic of compounding:

American Water Works Co. (AWK) — 800-937-5449, $100 initial minimum investment

Atmos Energy Corp. (ATO) — 800-543-3038, $1,250

CenterPoint Energy Inc. (CNP) — 800-231-6406, $250

CMS Energy Corp. (CMS) — 855-598-2714, $250

Dominion Resources Inc. (D) — 800-552-4034, $40

Duke Energy Corp. (DUK) — 800-488-3853, $250

Eversource Energy (ES) — 800-999-7269, $500

NextEra Energy Inc. (NEE) — 888-218-4392, $100

NiSource Inc. (NI) — 888-884-7790, $250

Verizon Communications Inc. (VZ) — 800-631-2355, $250

WEC Energy Group Inc. (WEC) — 800-558-9663, $250

Xcel Energy Inc. (XEL) — 877-778-6786, $250

Finally, we would add that Aqua America Inc. (WTR) — 800-205-8314, $500) — and AT&T Inc. (T) — 800-351-7221, $500 — also offer IRAs at an additional fee, in Aqua’s case $45 per year.

Subscribe to Investing Daily's Utility Forecaster here…

Related Articles on STRATEGIES