Believe it or not, investing in dividend stocks does not take a huge initial investment to start. I use to think that it took thousands and thousands of dollars to get started in the stock market. While most methods for accumulating stock (i.e. online broker) require larger sums of money to get started, there are a few tools available that don’t.
As a small investor of dividend stocks, I have been using two different strategies over the past couple of years to accumulate shares at the lowest possible cost. Both options listed below require $50 (or less) to get started and have very low (or non-existent) brokerage fees and commissions.
1 – Direct Stock Purchase Plans
I have been taking advantage of Direct Stock Purchase Plans for several years now. As a small investor, I don’t always have thousands of dollars available to invest. However, I often have a couple hundred dollars available each month that I want to put to use.
Generally there are not a lot of options for investing a couple hundred dollars each month, unless you want to pay a high percentage in fees. For example, an $8 commission on a $400 investment in the market comes out to 2%. The $8 commission may not seem like a lot but over the course of 12 months, it can add up – $96!
Instead of paying high commissions each month on a small investment (less than $500), I continue to put my money to work each month by leveraging a few Direct Stock Purchase Plans (DSPP).
Here are a few companies that I have purchased shares in using Direct Stock Purchase Plans each month.
- Clorox (CLX) – 26+ shares accumulated over the past 2+ years investing $50 to $100 each month.
- Cincinnati Financial (CINF) – 67+ shares accumulated over the past 2+ years investing $25 to $125 each month.
- Lockheed Martin (LMT) – 25+ shares accumulated over the past 1+ year investing $50 to $150 each month.
For more information on Direct Stock Purchase Plans, please read the following article – Advantages of Direct Stock Purchase Plans. If you are interested in searching for companies that have DSPP’s, check out the third party Computershare platform for a partial list of companies.
As you can see from the list above, there is nothing fancy about these positions. However, each provides a steady dividend income stream that continues to grow every month. These positions were not built through a onetime buy order, rather over time by small purchases each month, sometimes as low as $25.
2 – LOYAL3
As second option for investing small amounts of money in dividend stocks is finding the right broker. LOYAL3 is a new trading platform that offers the small investor a no-cost way to enter the market. They describe themselves as follows from their website – “LOYAL3 is about using social technologies to democratize the capital markets, making stock ownership easy and affordable for everyone.”
Note: Loyal3 shut down their operations effective May 22, 2017. Those with active Loyal3 accounts had the option to automatically have their shares transferred to FolioFirst on May 22. Like Loyal3, FolioFirst offers commission free trades on over 200 companies. However, they do charge a $5 monthly fee, starting August 1, 2017. A $5 per month fee can be a relative bargain if you are a trader who takes advantage of the free trades. However, it is a bit steep if you don’t plan on making new investments. If you are in the latter group, I recommend checking out other discount brokerages.
Here are a few advantages that the small investor can leverage using a tool like LOYAL3.
Advantages of LOYAL3
- No Fee’s – Buying stock through the LOYAL3 platform helps the small investor save on commission and fee’s. Investors don’t need to worry about how much of their investment is going to brokerage fees. There is absolutely no commissions charged on the purchase or sale of a stock.
- Partial Shares – Investors can buy partial shares in a stock, helping you stretch your investment dollars each month. Let’s say you want to purchase shares in Wal-Mart but only have $50 each month to invest. At the current share price (approx. $78, at time of publication), an investor would need to wait until month two just to buy a single share. Allowing the purchase of partial shares helps long term investors build their shares in a stock quicker than using other online brokers.
- Small Investments – For as little as $10, you can start buying stock in a range of companies. Since there are no commissions on the purchase of stock, investors can no longer say they don’t have enough money to start investing.
- Monthly Investments – One of my favorite things about LOYAL3 is the monthly automated investments you can setup. Only have $50 a month to invest? Not a problem – just setup a monthly plan to invest $50 each month in a particular stock. This can help the busy investor automate their investments.
- Pay by Credit Card – Investors can setup their account to pull funds to be invested from their credit card. While it is not a good idea to run up credit card debt to invest, savvy investors can use this opportunity to build up their credit card reward points. Assuming you plan to invest the money anyways, why not take advantage of earning some rewards at the same time.
The LOYAL3 platform is certainly not perfect or without some disadvantages. For example, the selection of companies investors can buy stock in are limited. You may not be able to take advantage of every company on your list, but they do offer some very well-known companies still like Wal-Mart, McDonald’s, and Microsoft.
Another disadvantage for dividend investors is that dividends cannot be reinvested into additional shares of stock. Ultimately, these funds can still be used to simply make additional purchases of the stock taking advantage of the no brokerage fees. However, the standard DRIP process would not be automated like some investors are used to.
I recently took advantage of this new trading platform by setting up monthly automated investments in 4 dividend stocks I am looking to accumulate – Intel (INTC), Wal-Mart (WMT), Coca-Cola (KO), and Microsoft (MSFT). Each month on a set date, I have $200 charged to my credit card and $50 is invested in each of the 4 stocks listed above. Since there are no fees or commissions, all of my money is being invested in partial shares of stock. (I then pay my credit card in full each month; do not use a credit card for investing if you don’t plan on paying in full).
This is a great way for me to dollar cost average into these stocks without worrying about what the overall stock market is doing. It also allows me to diversify my investment across 4 different companies as opposed to a single company. Over time I should be able to build a sizable long term position in each of these companies using LOYAL3.
Accumulating shares of stock using DSPP’s or from a platform like LOYAL3 may not be perfect for every investor. However, these can be great opportunities for those investors just starting out looking to maximize their investment dollars. Both options offer a low cost way to begin buying shares of stock. They also make it possible to invest very small dollar amounts (i.e. $10) for those investors who don’t have a lot of capital to get started.
I may decide at some point that Direct Stock Purchase Plans and LOYAL3 are not a good fit for me. However, for now they are great tools that have helped me build stock positions over a long period of time.
Full Disclosure – I own shares in the following stocks mentioned above – INTC, WMT, KO, MSFT, CINF, CLX, and LMT. This article is not a recommendation to buy these companies rather show the tools that can be used to accumulate shares.