- Check for the minimum first investment. Each company has different minimums. If your budget is limited, the best buy for you is one in which you spend the smallest amount of money and still get the stock you believe is one of the best. In the Resources section is a list of companies that offer DPP plans. Two of the transfer agents have a list at their sites that show minimums and types of plans offered. (They're also in the Resources section.)
- Your first task in most cases is to purchase at least one share. While the prices per share vary according to the company and throughout the day, you only purchase at the closing price. That's one problem with the purchase through a transfer agent. Transfer agents process all orders as a batch at the close of the market day. This makes the direct purchase less viable for the short-term trader. The same is true of selling the shares, although some companies offer market order sales. Market order sales trigger immediately, and differ from batch order sales that sell at the end of the day.
- Look for initial costs for the best direct purchase plan. While minimums and costs shouldn't be the reason you purchase the stock, they can narrow the field if you have several different stocks you like. There are minimum initial fees to set up an account for different shares. Some are $15 or higher, and others cost nothing. Obviously, if you are wavering between two stocks and one makes it free to set up the account, that can be the deciding factor.
- See if there's a fee for automatic investment or future cash purchases. Again, the fees vary, and you use them to decide between two different stocks, not to select a stock to purchase. There are also fees for the sale of the stock. They include both a flat fee and a processing fee, per share. You'll find that market order sales run higher than batch order sales; it's worth comparing the two when you sell.
- If you plan to continue reinvesting your dividends for more shares, the best direct-stock purchase plan for you has lower costs for dividend reinvestment plans. The company pays the cost of some of the plans, so there's no additional cost for you. Other plans cost as much as 5 percent to reinvest dividends. Your money obviously grows faster if you select a company that has you reinvest your full dividend with no fees.
- A plan with higher fees, higher minimum investments and higher future investments might be the best direct-stock purchase plan for you. If you firmly believe that XYZ Company is the best stock to purchase, don't allow the differences in fees to be a deterrent. If you can't afford the minimum purchase (some as high as $2,500), use an inexpensive brokerage service rather than the direct-stock purchase program. Remember, no matter how much of a bargain you get, the goal is to select a stock that grows in value.
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