THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Sunday, July 14, 1996 TAG: 9607130286
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: 110 lines
For thousands of small investors in Virginia, it's been a low-cost way of accumulating stock in a major company.
For Dominion Resources Inc., a dividend reinvestment plan has been an inexpensive way to raise fresh capital.
Often referred to as ``DRIPs,'' dividend reinvestment plans like Dominion's have enabled stockholders to use their dividends to buy additional shares in a company. A few of the 1,000 or so American companies offering such plans also allow stockholders to buy shares directly by paying a regular monthly amount or a lump sum.
With both types of plans, an investor avoids paying a commission to a stockbroker.
Launched in the mid-1970s, Dominion's reinvestment plan has provided the Richmond-based parent of Virginia Power with more than $1 billion of equity. A separate program that offers Dominion stock directly to small investors has generated $405 million of capital since the early 1980s.
Last week, Dominion announced the consolidation of its two investment plans. In the process, the company added some features and broadened the eligibility for investing.
Individuals already own 65 percent of Dominion's common stock, said Linwood R. Robertson, senior vice president.
``We're making this move to provide them more flexibility in using their Dominion stock accounts.''
The consolidation also will improve the efficiency and lower the cost of these programs, he said.
Dominion's dividend reinvestment plan has more than 156,000 participants. Its stock purchase plan has attracted 47,500 investors.
More than 120 U.S. companies offer direct sales of their stock to the public, and the list is growing, said Charles B. Carlson, editor of a dividend-reinvestment newsletter and author of two books on the topic. That's partly because the Securities and Exchange Commission has simplified its rules for such programs.
For small investors, the appeal of these programs is the opportunity to build a portfolio of stocks inexpensively. But investors should not be swayed by the low cost of these plans, Carlson said.
``The quality of the investment should be the overriding factor,'' rather than the opportunity to avoid paying a brokerage commission, he said.
Another factor worth considering is one's willingness to stick with an investment program for a sustained period.
``There's no point in getting enrolled in a program and then forgetting about it,'' said Vita Nelson, publisher of the Moneypaper Guide to Dividend Reinvestment Plans.
Dominion Resources and other companies have made it easier for investors to sell the shares they've accumulated in a dividend reinvestment plan or through direct purchase. Still, these plans are not designed for individuals who regularly buy and sell stocks.
``People who want to trade a stock should definitely use a stockbroker,'' said Nelson. One reason is that a broker is more likely to execute the purchase or sale of shares close to the price the investor is seeking.
Also, individuals have to weigh the diversity of their investments. In the past, companies offering dividend reinvestment plans and stock purchase programs have tended to be very large, mature companies, such as manufacturers and electric utilities.
That's changing, and some smaller, faster growing companies have begun selling their stock directly to investors, Carlson said. That makes it easier for an individual investor to build a diversified portfolio of stocks.
Earlier this year, several large foreign corporations launched stock purchase programs for U.S. investors using American Depository Receipts, something that provides additional opportunity for diversification.
``My guess is you'll see more of these,'' Carlson said.
American Depository Receipts, or ADRs, enable U.S. investors to buy shares in foreign companies without going through overseas stock markets.
By using the funds raised from its dividend reinvestment plan and stock purchase plan, Dominion has avoided the cost of raising capital through public stock offerings, said Robertson, the senior vice president. The company's last public offering of common stock was 1983.
Another key reason for offering the two investment programs is to solidify the support of shareholders. Many companies have promoted their dividend reinvestment programs because individual shareholders tend to be more loyal than institutional investors, such as mutual funds, and are less likely to challenge a company's management.
In the past, individuals were able to buy Dominion shares once a month by making a lump-sum payment or once a year by making monthly payments into an interest-bearing account. With the consolidation of the two investment plans, Dominion allows individuals to buy stock as often as twice a month.
The program allows participants to invest as much as $100,000 in its stock purchase program every three months. When selling an investor's shares, Dominion will charge no more than seven cents a share for the transaction, Robinson, the Dominion executive, said.
Beginning next year, participants in Dominion's combined investment program will be able to use an electronic link for receiving dividends and proceeds from stock sales in their bank accounts. The service also will allow investors to buy additional shares through their bank accounts. MEMO: MORE INFO
How to find out more about "DRIPS" Page D2 ILLUSTRATION: MORE ON "DRIPS"
Dominion Resources has set up a toll-free phone line with
information about its investment programs. The number is
1-800-552-4034.
INVESTMENT GUIDES
The Moneypaper Guide to Dividend Reinvestment Plans; Vita Nelson,
pubisher
Temper of the Times Communications Inc., (1-800-388-9993)
paperback, $25
Buying Stocks without a Broker, by Charles B. Carlson
McGraw-Hill, paperback, $17.95
No-Load Stocks, by Charles B. Carlson
McGraw-Hill, paperback, $14.95 by CNB