If a low-income investor wants to dive into the stock market while minimizing costs, Direct Stock Purchase Plans, or DSPP, is a great way to do that. You’ll be able to invest more money into a company rather than paying a commission to a stock broker.
So what are Direct Stock Purchase Plans?
Direct Stock Purchase Plans – What Are They?
To define it in its simplest form, DSPP is a method that enables individuals to acquire stocks of a company without going through a stock broker. Everyone knows that when you purchase a stock via brokerage firm, you will be paying for the stock and commission.
Direct Stock Purchase Plans are an alternative method that allows you to skip the broker and purchase a stock directly from the company itself. The obvious benefit of Direct Stock Purchase Plans is that you will save money as you won’t be paying a commission fee.
Keep in mind that not all companies offer a DSPPs. However, the number of companies offering this option these days is plentiful compared to the past. This is because the Security Exchange Commission (SEC) loosened regulations when it came to stock sales in the 1990’s. For companies, it opened a new door for the sale of the company’s stocks.
If given the choice, most companies would prefer to have their stocks owned by named individuals as opposed being owned in bulk by a handful of large companies. DSPPs are a way for companies to encourage individuals to purchase their stock.
Are There Any Restrictions To DSPPs?
While it is true that companies that offer DSP are growing, some do apply restrictions on the sale of the stocks. For example, some companies only offer DSPPs to the employees within the company, while others only allow DSPPs while enrolling into a dividend reinvestment plan. With dividend reinvestment plans, you initially purchase a stock through a brokerage firm. With the money that you earn from the dividend, that money is reinvested, commission free, into the stock.
How To Purchase Stocks Directly
If you are interested in purchasing stock directly from a company, then you can simply visit or contact the corporate office and inquire about their Direct Stock Purchase Plan. Some companies will sell to you directly, while others will work with a transfer agent. A transfer agent is a trust company and it facilitates the sale of the stock. Keep in mind that you may have to pay a separate fee for the transfer agent, but it still maybe cheaper compared to a brokerage firm.