How You Can Buy Stock Directly
Q. I heard recently that some companies allow you to purchases their stock directly from the corporation. Can you give me a list of those companies, or at least tell me how to find out more about this? -- T.E.G.
A. There are a variety of ways you can purchase stock directly from a company.
A relatively tiny number of the estimated 15,000 publicly traded companies in the United States sell their shares directly to the public without the services of a broker or other intermediary. Among the three dozen or so are Exxon Corp., Dial Corp., Arrow Financial Corp., W.E. Grace Co., Johnson Controls and Texaco Inc.
Far more common are dividend reinvestment programs that allow existing shareholders to automatically convert their quarterly dividend payments into additional shares at prevailing market prices without paying any broker commissions. In many cases, companies with dividend reinvestment programs also permit their shareholders to purchase additional shares throughout the year. Estimates of the number of U.S. companies offering this service range up to 1,200. To buy shares directly from the relatively small number of companies offering them to the public on a first-time purchase basis, contact the investor relations office of the corporation.
To buy shares from the remaining companies permitting direct investments, you will first have to become a shareholder by purchasing one or more shares through a broker or other intermediary. Perhaps the best way to purchase these initial shares is by going through the National Assn. of Investors Corp. The price is $35 for an annual membership in the group plus a $5 transaction fee for each company the investor buys a share in. The $5 fee is the same regardless of whether you purchase one share or 100 shares through the NAIC--clearly a boon for the budget-minded small investor.
However, be advised: The NAIC acts as an intermediary for only 142 of the companies offering dividend reinvestment and direct purchases. To become a shareholder in any of the remainder, you will have to go through a broker or the company.
The $5 fee covers the NAIC’s cost of establishing your direct investment account with the company. After that, you deal with the company on your own. You may join the company’s dividend reinvestment program as well as purchase additional shares directly from the company according to its own rules.
But before you jump at the opportunity to avoid the broker’s commission, estimated at 1% to 2%, be aware of what you are missing by giving up the services of a broker. You will get no analysis or recommendations of stock opportunities; you will get no advice on market timing. You will be on your own.
For more information about dividend reinvestment and direct stock purchases, see “Directory of Companies Offering Dividend Reinvestment Plans,” published by Evergreen Enterprises. The book, which sells for $29.95, plus $2.50 for delivery, can be obtained by writing to P.O. Box 763, Laurel, MD 20725; or call (301) 549-3939. Other good sources are “Free Lunch on Wall Street” and “Buying Stocks Without a Broker,” both written by Charles Carlson.
Leaving Stock to Your Spouse
Q. I am a married man and own many shares of stock in my name alone. These shares have appreciated greatly over the years. I would like to be able to leave them to my wife at death in such a way that she will not have to pay taxes on that appreciation. I would also like to have my estate avoid probate. Last, I would like to get the certificates out of my physical possession. What should I do?-- G.B.B .
A. For starters, open an account at a brokerage and take in your certificates. You should expect to be required to do some business through the brokerage, since it won’t make any money acting as your vault. (Otherwise, tuck the certificates into a safe deposit box at your bank.)
You could give a half-interest in the stock to your wife and make the investment part of your community property. There are no gift tax implications to this, since there are no limits on gifts between spouses. As community property, the shares are entitled to a full step-up in value upon the death of either spouse.
This means that if your wife dies before you do, the tax basis of the shares will be set as of her date of death and when you may sell them, you will avoid taxation on the appreciation that accumulated before you converted them to community property. However, by giving your wife a half-interest in the shares, you are giving up complete control of the investment. If your wife dies first, she may leave her interest to whomever she pleases; it doesn’t have to be you.
Another strategy, says Calabasas estate law specialist Doron M. Tisser, is to do nothing at all. By leaving the situation as is, you retain complete control over the shares. When your wife inherits the shares, they will be revalued as of your date of death, and when she sells them, she will avoid taxation on the appreciation that accumulated up to that point.
As far as probate goes, Tisser notes that a surviving spouse in California can request a shortened court procedure called the “spousal property petition” to handle the disposition of assets between spouses.
