If caution is the watchword for investing in the 1990s, the climate seems just about ideal for dividend reinvestment plans.
These programs, offered by several hundred of the nation's public companies, stress patience and long-term thinking in buying and holding stocks."After the get-rich-quick mentality of the 1980s, investors in the current decade are realizing that slower is safer," say analysts at Standard & Poor's Corp., which has just published a new edition of its Directory of Dividend Reinvestment Plans.
"DRPs fit in ideally with this more conservative, long-term approach to accumulating a good-sized stock portfolio."
The basic idea of DRPs dates back to the 1960s, when companies started setting them up to allow their shareowners to buy new stock automatically with the money they received in dividends.
As DRPs spread, some of them acquired other features, including an arrangement that allows plan members to make additional purchases from time to time at little or no commission cost, and even in some cases at a price slightly below the going market level.
The whole idea got some extra attention in early March when Exxon Corp. began offering to make first-time sales of stock to investors directly through its DRP, circumventing stockbrokers.
Some two dozen other companies - among them W.R. Grace & Co., Procter & Gamble Co. and Texaco Inc., as well as a smattering of utilities - already had a similar service. But in the great majority of cases, you need to become a shareholder before you can join a DRP.
Bill Smith, an Exxon spokesman, said his company's offer drew more than 50,000 telephone inquiries in the first month after it was made, and 25,000 enrollments in its plan.
Still, if anyone expected a rush of other companies to duplicate that deal, it hasn't materialized yet.
"By itself, Exxon's new plan isn't the death knell for the brokerage community," says Charles Carlson, editor of the investment advisory service Dow Theory Forecasts in Hammond, Ind. "However, those on Wall Street who downplay the long-term implications of Exxon's plan may be making a big mistake.
"Sure, many investors need guidance and can benefit from a relationship with a broker. However, a growing number of investors feel they don't need a broker.
"Furthermore, a strong case can be made that brokers don't even want to do business with individual investors and are, in effect, charging them out of the market with rising commissions and nuisance fees."
At least two other organizations - the National Association of Investors Corp. in Royal Oak, Mich., and the Moneypaper advisory service of Mamaroneck, N.Y. - operate services designed to help would-be DRP members acquire their initial share holdings.
Or, of course, an initial investment can be made through a broker, with subsequent transactions conducted through a DRP.
As most advisers agree, there is a lot more to DRPs than just a chance at cost savings. By investing regular amounts periodically, people can skirt the troublesome problem of trying to "time" the stock market.
In fact, the practice known as dollar cost averaging ensures that over time they will buy more shares at lower prices than they do at higher levels.
Adds S&P: "Although gains in the stock market over recent periods are impressive, they are much more so with dividends reinvested."
But all this also means that DRPs are no way to trade your way to overnight riches in the market. Nor can they be expected to prevent a loss when the fortunes of the company in question decline and never recover.
Then, too, there's a nagging tax problem. You have to pay any income tax obligation on dividends even if your DRP plows the money back into new shares.
Still, S&P concludes, "For the long-term investor, the pluses far outweigh the minuses."