Usually, the investor creates a monthly deposit, then the company applies this amount for purchasing shares. Every month, the plan would purchase new shares of company stock from the available money from dividend payouts or deposits. This flow is automatic to slowly accumulate shares from the company. The reason is because the plan often has low fees and sometimes no fees at all. Thus, DSPPs are a less expensive way for new investors entering financial markets. According to the sources, the minimum deposit for DSPP participation could only be as much as $100 to $500.
Dividend reinvestment is the most common means of direct investment. It refers to the use of one’s dividends to purchase more shares in the same company. Investors could set up a DSPP to buy the shares directly in a company that pays dividends. Then, investors could reinvest any income payments through an optional dividend reinvestment plan or (DRIP). Through DRIPs, investors could reinvest their cash dividends into more shares or fractional shares in stock. One major problem of a DSPP is illiquid shares. It is challenging to re-sell one’s shares without the broker’s help. Therefore, DSPP is suitable for investors with a long-term investment strategy.
Investors are the only ones benefiting from DSPP, the company offering them could enjoy it as well. DSPPs could bring in new investors who might not be able to invest in the company. Thus, a DSPP could support a company’s ability to raise funds. Companies offering DSPPs sometimes post information about the program on their website. Sometimes, it is placed with details like investor relations, shareholder services, or FAQ sections.
