Question: I want to teach my 6-year-old grandson the value of investing. Would you please suggest a few strong stocks that offer dividend-reinvestment plans?
Question: I am interested in dividend-reinvestment plans for children. Do such creatures exist?
Answer: I'm not aware of any dividend-reinvestment plans, or DRIPs, specifically for children, but kids can certainly participate in the DRIPs that are offered by hundreds of companies.
In fact, DRIPs are particularly well suited for kids, who probably don't have a lot to invest. Not only can you reinvest dividends to buy more shares, but you can also buy additional shares, often in small increments. Most plans charge fees for these transactions, but they're generally lower than brokerage commissions.
To enroll in a company's DRIP, you must first own at least one share of stock in the company. Some firms require that you own more than one share, or that you make a minimum dollar investment.
Many companies have direct-purchase plans that let you buy your first share directly from the company, without going through a broker. For a detailed list of companies with such plans, along with the fees they charge for this service, visit Netstock Direct www.netstockdirect.com.
Hundreds of companies with DRIPs don't give you the option of buying stock directly, so you'll either have to go through a broker or use a broker-free service that specializes in making initial investments at low cost. Sometimes you can circumvent dollar minimums for initial purchases in company-direct plans by buying a single share through one of these broker-free services, such as Direct Investing www.drp.com and the Low Cost Investment Plan of the National Association of Investors Corp. www.better-investing.org.
Make investing more appealing for your grandson by choosing companies whose products he will recognize. Here are a few that let you buy your first share directly from the company:
Hershey Foods (symbol HSY, 1-800-539-0261), $500 minimum.
H.J. Heinz (HNZ, 1-800-253-3399), $250 minimum.
Yum! Brands (YUM, 1-800-439-4986), $250 minimum. Yum! Brands owns Kentucky Fried Chicken, Pizza Hut and Taco Bell.
With Heinz, you will need to own 10 shares before you can reinvest dividends. With Hershey and Yum! Brands, there is no minimum-share requirement for reinvesting dividends.
Have a question about kids and finances for Dr. Tightwad? Write to Dr. T at 1729 H St., N.W., Washington, DC 20006. Or e-mail jbodnar@kiplinger.com.