Hundreds of publicly held companies in the United States permit individuals to buy shares of their stock directly in 2011 without using a professional brokerage. Using the word "best" is a personal choice when it comes to describing direct stock purchase plans. What works well for one individual's financial goals may not suit another. Plans vary by the initial amount required to enroll in the plan, minimum amounts required for additional investments, fees charged for enrollment, and whether or not dividends can be reinvested.
Examples of Small Initial Investments
Examples of large companies with minimal initial investment requirements include Honeywell International, which requires an initial purchase of one share, followed by $25 investment minimums. Honeywell permits dividend reinvestment. Microsoft Corporation allows direct stock purchase with a $250 minimum initial investment, and additional investment increments of $25, but does not offer dividend reinvestment through the direct purchase plan. There are dozens of companies that offer the same plans with the same amounts as these examples and dozens more that operate under slightly different terms. For example, Bank of America Corporation offers a direct stock purchase plan with the initial minimum investment set at $1,000 for new account holders.
Existing Stock Holders
Shareholders who own stock in a company that offers direct stock purchase plans generally are permitted to bypass the minimum initial investment requirement if the company offers a dividend reinvestment plan. For many, prior ownership of one share is the only prerequisite for enrolling in a plan. Examples include Yahoo! Inc., Whirlpool Corporation, Wal-Mart Stores, Inc. and dozens of other well-known companies.
Purchase of Partial Shares
Not all companies permit the purchase of partial shares, but many do. For investors wishing to capitalize on the power of compounding this option can be a big plus. The company retains the investor's dividends and purchases whole or partial shares of additional stock for the investor. The companies that permit purchase of partial shares generally extend the privilege to include a partial purchase when an investor deposits a set amount. For example, an investor that contributes $25 a month to investing in the XYZ Corp., whose stock is selling in the $49 to $50 range, would take ownership of almost one-half of one share per month.
Pros and Cons of Buying Stock Direct
Bypassing the broker can save thousands of dollars in commission and fees over an investor's lifetime. In addition, direct stock purchase plans make it possible for an individual with limited funds to invest in and reap the rewards of owning stock in some of America's largest companies. One disadvantage of buying direct is that the investor must do her own homework -- research the financial stability of the companies, read the prospectus carefully, and make her own decisions. However, in doing so, the investor can find what is the "best" direct stock purchase plan to suit her individual needs.