Investing in company stock is a great way to build wealth over the long-term. This is because company stocks not only appreciate over time, but they also pay monthly or quarterly dividends. I’m currently using a strategy to build wealth with dividend stocks.
Individuals can buy stock in a company via a direct stock purchase plan, through an online brokerage, or a full-service (face-to-face) broker. Each of these options carries its own advantages as well as disadvantages.
Direct Stock Purchase Plans
If you have very little money to invest in stocks, then a direct stock purchase plan may be ideal for you. Most publicly traded companies sell shares of their stock directly to investors through stock transfer agents like BNY Mellon and Computershare.
The cost of such purchases is tiny when compared with full-service or even discount brokerages; a $150 stock investment made with BNY Mellon, for example, could cost as little as $1. Dividend reinvestments made through stock transfer agents are usually free, or incur a minimal cost.
Direct stock purchase plan information is usually listed on a company’s website under its “Investors” section. If it is not listed, you will need to make an inquiry with the company. Direct stock purchase plans are not heavily advertised, if at all, requiring some research on your part if you want to take this route.
Also keep in mind that one of the major disadvantages with direct stock purchasing is that you cannot time your purchases; the investments are made on a schedule that stretches days or even weeks into the future. This means that you need to take a buy-and-hold approach to buying company stock, and forget about day-trading for now.
Buying Stock Through an Online Brokerage
If you have more money to invest, and are fairly knowledgeable about the company and its stock, using an online or discount brokerage like E-Trade or TD Ameritrade may be right for you. Such brokerages charge a little more money to invest in company stock (e.g., TD Ameritrade, the brokerage I personally use, charges $9.99/trade), but they also provide numerous benefits such as fast trades, company information, access to international markets, stock alerts and easy-to-use trading platforms.
If you know what you are doing, require minimal professional advice, and would like to take advantage of market upswings/downswings, IPOs and company events (e.g., ex-dividend dates), then online brokerages are best suited to your needs.
Using a Broker to Buy Stock
If you are less confident about making company stock purchases, and have a significant amount of money to invest (i.e., $100,000 or above), or if you simply don’t have the time to research companies and their stocks, then a full-service brokerage firm may be your best option.
Full-service brokerages like Morgan Stanley and Edward Jones help you with every step of the stock investment process, from researching company information and investment risk to making timed trades and dividend reinvestments to preparing your net profit and tax statements.
Such hand-holding does not come cheap, however; typical prices for trades placed by full-service brokerages run $100 and above. Alternately, the brokerage may charge a 10% or higher fee that is based on the total purchase price of the company stock. However, paying high fees may be worthwhile if you want to minimize investment risk and (hopefully) optimize your returns.
In summary, you have many options at your disposal when buying stock in a company. From personally dealing with a company through direct stock purchasing to letting a third party brokerage firm make your trades, you can profit from the historic stock appreciation of companies as well as their dividend payouts.