Direct-Sale Stock Programs Can Save Investors Money, but There Are Drawbacks

Q: Is there a source of information concerning the purchase of stocks directly from the issuing companies without the services of a broker? Is there a list of companies that offer this option? --S.T.A.

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A: A small but fast-growing number of the 15,000 or so publicly traded U.S. corporations sell their shares directly to the public without the services of a broker or other intermediary.

At last count, the number stood at more than 130, about four times the number offering direct sales just two years ago. A list of these companies is available free from the publishers of No-Load Stock Insider, a newsletter about broker-less stock buying. Call (800) 711-7969.

Direct-sales programs go beyond the better-known dividend reinvestment plans offered by more than 1,000 U.S. companies.

What’s the difference? Dividend reinvestment plans, or DRIPs, are open only to existing shareholders and allow them to use their dividends as well as additional funds (often up to certain limits) to purchase more shares in the company.

Direct-sales plans aren’t limited to existing shareholders; anyone may invest at any time. However, companies often impose minimum or maximum limits, or both, on such purchases. For a free list of companies offering DRIPs, call Moneypaper, an investment newsletter, at (800) 388-9993.

Although it’s hard not to leap to the conclusion that DRIP and direct-investment programs are the perfect low-cost investment vehicles, you should proceed with caution. Remember, there’s no such thing as a free lunch.

For starters, many of these stock-purchase plans charge a fee, however nominal, for both buying and selling. But worse for investors is the fact that they have little if any control over the timing of those transactions. Some companies make them only once a month or even once a quarter.

Can you think of a worse system when the stock market is in rapid flux? You have no way of seeking the optimal buy or sell price.

These plans are best suited to investors who like to sit on their holdings for long periods. But even these investors are well-advised to read all the fine print in the direct-purchase and DRIP prospectuses before taking the plunge.

Two other sources of information on direct purchases and DRIPS are a book and an Internet Web site. “Directory of Companies Offering Dividend Reinvestment Plans” offers details on the plans of each company, information that you don’t get in the free listings mentioned above. It is published by Evergreen Enterprises and sells for $29.95 plus $2.50 postage. To order, write to P.O. Box 763, Laurel, MD 20725, or call Evergreen at (301) 549-3939. You can also check out the Securities Transfer Assn. Web page at https://www.netstockdirect.com

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Q: If a divorced spouse earns the same or more than her ex-husband, is she eligible to collect spousal Social Security benefits? --F.K.

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A: Full spousal benefits, regardless of whether a spouse is married or divorced, are never more than 50% of the primary wage earner’s benefits. (Widow’s and divorced widow’s benefits are equal to 100% of the wage earner’s benefits.)

A spouse or former spouse who has contributed on his or her own into the Social Security program technically can be eligible to collect spousal benefits as well as his or her own, but the real issue is which account will generate a larger payment--yours or your spouse’s.

Assuming you have contributed to the Social Security system over the same period as your ex-husband and have consistently earned the same or more than he has, 100% of your own benefits is better than 50% of your spouse’s. (You aren’t eligible for both.)

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Q: My father enjoys playing the California Lottery. What would happen in the unlikely event that he won one of the huge jackpots and took his winnings over the next 20 years? Would the payments stop upon his death? --V.D.

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A: Lottery winnings, including future payments, are considered assets of the winner and become a part of that person’s estate if he dies before the payments are completed. In the event of the winner’s death, the payments are disbursed on schedule according to the deceased’s will as adjudicated, if required, by the probate court. In no case do the winnings revert to the state.

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Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or e-mail carla.lazzareschi@latimes.com