Dow Theory's Favorite DRIPs

09/18/2017 2:56 am EST

Focus: DIVIDEND

Richard Moroney

Editor, Dow Theory Forecasts

Tired of dealing with middlemen? Some stocks allow you to avoid that hassle. Roughly 700 U.S. companies and more than 200 foreign firms offer dividend reinvestment plans (DRIPs), asserts Richard Moroney, editor of Dow Theory Forecasts.


Get Top Pros' Top Picks, MoneyShow’s free investing newsletter »


These programs allow U.S. investors to buy stock directly, no brokerage accounts required. Instead of receiving dividend checks, investors reinvest the dividends directly to buy additional shares.

If the dividend amount is not large enough to purchase whole shares, investors receive fractional shares, which in turn receive a fractional part of future dividends.

Some DRIPs have IRA options built directly into their plans. Direct purchase plans with an IRA option include Exxon Mobil (XOM) and McDonald’s (MCD).


Advertisement


Some DRIPs, primarily real estate investment trusts (REITs) and a few utilities, even allow a participant to reinvest dividends and/or make optional investments at discounts to the market price, usually 3% to 5%.

Three of the A-rated REITs in our Alternative Income Watch List — Liberty Property Trust (LPT), Omega Healthcare Investors (OHI) and Welltower (HCN)  — offer discount options.

 Just because a stock offers a DRIP doesn’t make it a good investment. The good news is that a lot of high quality companies offer DRIPs or direct-purchase plans, including a number of our buy  recommendations.

One group heavily populated with DRIPs is banks, and three of our recommendations — Comerica (CMA) , J.P Morgan Chase (JPM) , and Zions Bancorp (ZION)  — offer plans.

Comerica and Zions have traditional DRIPs that require share ownership to join the plans. Once in the plans, Comerica’s minimum optional investment is $25, while Zions’ minimum is just $10.

J.P Morgan offers a direct-purchase plan with a minimum initial investment of $250, though the firm will waive the minimum if an investor agrees to automatic monthly investment via electronic debit of at least $50 for five consecutive months. After the initial investment, subsequent investments require a minimum of $50.

Banking stocks have been sluggish since their big rally at the end of last year. Nevertheless, the Fed may raise rates one more time this year, which should be a plus for the group.

Also, we remain mostly bullish on the U.S. economy, which should translate into better loan demand. J.P. Morgan and Zions Bancorp are rated Buy and Long-Term Buy. Comerica is rated Long-Term Buy.

Media stocks represent another attractive hunting ground for DRIPs. CBS (CBS)  and Comcast (CMCSA) represent quality investments in this space.

CBS offers a direct-purchase plan for initial purchases. Minimum initial investment is $250, with subsequent optional investments requiring a minimum of $50.

Comcast has a traditional DRIP that requires share ownership before joining. Once in the plan, minimum optional investment is also $50.

CBS and Comcast are coming off solid June quarters in which both companies beat consensus earnings and revenue estimates. CBS and Comcast are both rated as Long-Term Buys.

Subscribe to Richard Moroney's Dow Theory Forecasts here…

Related Articles on DIVIDEND