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Saturday, August 19, 2006

To DRIP or not to DRIP - Coca Cola versus Pepsico

Not surprisingly, Pepsico's competitor, Coca Cola (Symbol: KO) also has a DRIP. Like Pepsico's, I like Coca Cola's DRIP also as it has minimal charges in my view, and the DRIPs of both Coca Cola and Pepsico seem to be comparable in most respects. For example, like Pepsico, Coca Cola also requires a person to be an existing shareholder before he/she can buy additional shares through its DRIP.

The thing I like about many DRIPs is that they allow small investors to invest in a company's stock with a low minimal balances (in many cases, in $10-$250 range) and without paying commissions in most cases, while also allowing investors to add money to the plan over time, again without worrying about paying brokerage commissions. However, in most cases, the plans charge some fee when selling shares through the plan. In addition, many plans do not allow investors to buy or sell shares on any day of their choice but the plan buys shares for investors only on certain dates of the month. This can be a drawback if an investor wants to take advantage of a drop in the firm's share. However, by the time, the DRIP buys shares for him/her, the price of that company's stock may already have risen back.

In addition, not all firms' DRIPs are created equal. For example, DRIPs of some firms may impose various charges to set up an account, to purchase additional shares whether via cash or by electronic funds transfer, pay monthly maintenance fee, as well as when reinvesting dividends. And what I have seen is that these excessive charges are not limited to DRIPs of unknown firms but many good and large firms also impose such fees. For example, DRIPs of McDonalds and WalMart have many charges associated with them; not surprisingly, I am not very fond of them. I think it will be much cheaper to buy simply shares of such companies (if I want to buy them) directly through discount brokers rather than those these companies directly where over time a person could end up paying much more commissions and fees.

posted by Ruby @ 8:26 AM

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