Companies that allow you to buy additional shares of their stock directly from them only if you already own one or more shares of the company's stock are said to have Dividend Reinvestment Plans (DRIPS).

You will find that some investors use the terms "direct purchase plans" and "DRIPS" interchangeably but there really is a difference between the two. This difference can be significant to Teenvestors, who have little money to invest in the first place. The only, but important, difference between direct purchase plans and DRIPS is that a company that offers only DRIPS will not allow you to purchase your first share from it directly. Unless you already own a share of that company and it is registered in your name (in other words, unless you are a "shareholder of record "shareholder of record" ), you would have to purchase your first share of the company's stock from a broker. Of course, once you have that initial share, you're set. You can then participate in the DRIP program and take advantage of the reduced fees offered through the program.

Companies such as PepsiCo, General Electric, and Exxon, have their own DRIPS. The "dividend reinvestment" part of these plans refers to the fact that when you participate in them, your dividends are automatically reinvested in additional shares of the company's stock.

Becoming A Shareholder Of Record
Becoming a "shareholder of record" is something a Teenvestor will have to do in order to be able to buy stock directly from companies. Normally, when you buy shares through a full-service broker such as Merrill Lynch or through an online broker such as Etrade, the shares you buy are registered in the broker’s name, or street name as it is called. So for example, if you buy a share of General Motors (GM) through Etrade, the broker will register the purchase in Etrade’s name (the street name). GM will not know that you actually own the stock because as the stock is not registered in your name, you are not a shareholder of record. All GM knows is that Etrade has bought shares on someone’s behalf.

As a practical matter, it is only important whether your shares are registered in your name or in the Street Name if you want to participate in a DRIP because you must be the owner of record of at least one share of stock in order to participate in the company’s DRIP program. If you don’t care about buying shares through DRIPs, you would not need to make sure that you are the shareholder of record.

Let’s assume for now that you have already bought a share of GM from an online broker and your share was registered in the Street Name. In order to participate in DRIPS, you’d have to transfer the registration to your name (thereby becoming the shareholder of record) and have you broker send your stock certificate to you. The certificate is the ultimate proof that you own stock in GM and it is also what gets your name on GM’s list of who owns its stock.

Unfortunately, when a broker transfers stock in your name and issues you a stock certificate, they usually charge you from $15 to $25 but some charge as much as $75. But this may be a small price to pay to begin participating in DRIPS because once you are a registered shareholder of record of a participating company’s stock, you can invest in the stock periodically when you feel like it and at very little cost.