The benefits of buying stocks every month are numerous. The first is the safety of dollar-cost-averaging (DCA) — where you — with the same amount of money invested each month — will get more shares when the market prices are down, and less shares when the prices rise. The other big reason to buy stocks over a period of time is really quite obvious — you might want to invest more money than you actually HAVE AVAILABLE RIGHT NOW! If you only have a few hundred or a few thousand, but realize that you would like to build a big position over time — monthly investments let you start investing now. But even with a discount brokerage account, where most transaction fees costs $7 to $10 per trade, it would cost you about $84 to $120 per year to invest monthly. This is where DRIP or DSPP plans come in…
General Electric: GE STOCK DIRECT
I paid a one time enrollment fee to start a General Electric DRIP account with an initial minimum deposit of $250. The one-time fee is similar to a single transaction fee ($7.50) above, and then it only costs $1 per month to buy GE stock regularly. I currently invest $75 every month, and I love that after the $1 fee, the rest of the money ($74) goes towards the purchase of as many whole and partial shares as it can afford (to four decimal places). These partial shares also generate quarterly dividends, so it’s great to make the compounding effects faster. For $12 per year (after the initial set-up), you will be able to buy this great conglomerate company through the short-term cycles of the market.
Our General Electric Holdings
We currently buy our monthly GE stock from Bank of New York Mellon’s Investor Service Direct (BNY Investor Direct), but apparently this entire unit was sold to Computershare and will switch over to them. (That’s OK, that’s where our IBM stock DRIP plan is housed.)
As of this date (4/4/12), we have 86.7308 shares of General Electric, with today’s close of $19.74 that represents a market value of $1712.07. Our last three purchases of $75 (minus $1 for service fees) netted 3.9143, 3.8683, and 3.6306 shares, at share prices of $18.9050, $19.1300, and $20.3825. The January 2012 GE dividend brought in $11.99 as the net distribution, but we have the account set for 100% dividend reinvestment. This dividend bought 0.6319 shares on 1/25/12.
GE currently pays a quarterly dividend of .17/share, and the next dividend is payable on 4/25/12. The ex-dividend date for this payout was February 23, 2012, at which time we held 79.2319 shares. I expect a dividend payment of $13.46, which is about 2/3 of a share.
With monthly net investments of $74, this works out to $888 per year, or approximately 44.4 shares at $20/share. This equates to 33.3 more shares this year (barring any increases to our contributions), and without counting dividends. By the end of the year, as long as GE’s stock price is below $20.40, each quarterly dividend will give us a new full share. That’s the compounding that makes these plans fun! (And the partial shares from dividends earn dividends too!)
We started this account in January 2011 with an initial purchase of $340 (a nice round number!), and have only made two additional off-cycle EXTRA contributions of $100 and $55. If we feel compelled to do that again, we will just increase the monthly contribution going forward. The only reason I don’t do that right now is that it’s not $75 that is the factor — it’s $75 to GE, IBM, K, KFT, STD, WFC, SVU, and CAT monthly (for diversification) — which is $600 total. That’s all our budget will allow right now — and that’s after a slow, but steady, increase.