Charles Carlson led the do-it-yourself investor movement at a time when few people were actually doing it.
In the Ice Age before smartphone apps allowed consumers to invest their change and buy fractions of shares, and the era when brokerage firms giggled at the concept of no-commission trades, Mr. Carlson was encouraging investors to buy stock straight from the company.
Mr. Carlson, 58-year-old chief executive of Horizon Investment Services, is the longtime editor of the DRIP Investor newsletter, aimed at do-it-yourselfers who use the dividend reinvestment plans, or DRIPs, offered by many companies to buy shares directly.
DRIPs, which enable investors to reinvest the cash dividends they receive into additional shares or fractional shares of the underlying stock, largely fell by the wayside as exchange-traded funds, the evolution of the brokerage industry and the democratization of investing allowed investors to control portfolios easily and at low cost. Today, Mr. Carlson is the most staunch remaining advocate for direct-purchase investments. While Horizon covers more than DRIPs—it is best known for the Dow Theory Forecast newsletter—Mr. Carlson still says investors can benefit from the revolutionary thinking of the past by managing their own stock portfolio directly, and without a broker.
Here are edited excerpts from a recent interview:
Cutting out middlemen
Q: Where did your interest in dividend-reinvestment programs and direct-purchase stocks come from?
A: When I first started working at Horizon, we did an occasional feature for our Dow Theory Forecasts newsletter on dividend-reinvestment plans. It resonated with the audience and with me because in those days it was pretty expensive to buy stocks through brokers, and here was a way to do it and mostly cut out the middleman. I decided to explore the space more, ended up writing a book called "Buying Stocks Without a Broker" in 1991, and we started DRIP Investor a year later.
Q: How has interest changed over the years?
A: A number of trends happened. You had an explosion in the number of investment options out there. Mutual funds became very popular, and you had a movement away from individual stock ownership toward fund ownership.
Then you started to see brokerage fees aggressively come down for discount brokers, mitigating some of the benefit of investing through DRIPs because it took some of the cost advantage away. As it became easier to buy through brokers and online, interest in dividend reinvestment plans started to erode.
Q: Can DRIPs coexist and survive as the investment world evolves?
A: I'm sure many people don't know that these things exist, but there are millions of people participating and millions of DRIP accounts out there. There are 700 or 800 companies with plans; some aren't attractive because of heavy fees and high dollar requirements to participate, but others have no fees and you can get in for $10 or $50.
Two-thirds of the stocks in the Dow Jones Industrial Average (.DJI) offer the ability to make even your initial purchase directly, and I think 25 of the 30 Dow stocks have a dividend-reinvestment plan. Someone will always be interested in a good plan available on brand-name stocks.
So often in the investing world, things get framed as either/or. Either you own stocks or you own mutual funds. Either you buy stocks through a broker or through a DRIP. Either you're an active investor or a passive one, and so on.
That's a false framing. Either/ors are exclusionary, which makes no sense.
There are stocks where investing via DRIP, having dividends automatically reinvested and throwing in $50 a month to buy full and fractional shares, makes perfect sense. And then, to cover a certain space or sector or something, a fund or ETF makes sense. Investors can have more than one tool in their toolbox.
Introduction to stocks
Q: Who should be into DRIPs today?
A: They will always work well for the classic buy-and-hold, start small and contribute small but accumulate long-term kind of individual stock investor.
Their biggest power now is as a gateway, getting people in for a few bucks to experience the market in ways they control. It's a simple, unimposing process for folks who may be intimidated by Wall Street, who want to do this on their own terms and in amounts that make sense.
DRIPs also remain a nice opportunity to introduce young people and new investors to the market. New investors can identify with a lot of individual stocks. "Go buy a faceless index fund" isn't as strong a lesson as someone knowing what technology they like or use and then making them an owner of the company behind that technology…. Get someone interested in owning companies and help them develop the discipline of long-term investing and you change their life forever.
Q: One of the cardinal rules of investing is diversification. Wouldn't a fund offer more diversification than a DRIP for someone starting out?
A: Yes, but there aren't many places you can throw 50 bucks at something and start investing in something you know. The process becomes infectious, you see it work and you want another and another. For many people, eventually the problem becomes too much diversification and too many stocks, rather than not enough diversification.
Q: How many DRIPs do you participate in?
A: I'm in 13 or 14 DRIPs. I'm a buy-and-hold guy, and then buy more through reinvested dividends and optional cash payments. I don't sell a lot; some stocks that I owned in my editor's portfolio in the very first DRIP Investor newsletter in 1992 are still in my portfolio.
Q: Which stocks are those?
A: The original editor's portfolio was Bristol-Myers Squibb (BMY), Exxon [now Exxon Mobil] (XOM), PepsiCo (PEP), Procter & Gamble (PG), Walgreens [now Walgreens Boots Alliance] (WBA) and Browning-Ferris Industries. Browning-Ferris, a waste company, was acquired, but all of the other ones I still own.
Q: Are any DRIPs particular favorites right now?
A: Some of my favorites are in the tech space, which might surprise people who think DRIPs are just from large, old, stodgy, no-growth, dividend-paying companies. A couple of old tech companies that have done a nice job of reinventing themselves are Intel (INTC) and Microsoft (MSFT); both offer direct-purchase plans for your initial transaction, both companies have been making nice product transitions in the higher-growth markets in the technology space. Those two stocks—and I will add a third, Cisco Systems (CSCO)—offer ways for individuals to own transforming tech companies that should continue to do well, giving them all of the long-term benefits you hope for from direct ownership.
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