Drips Alive, And Mostly Well Despite Rumors Of The Death Of Retail Investing…
An interview with Chuck Carlson, Editor of the DRIP Investor magazine
THE OPTIMIZER: Chuck, I know you read our recent article about the reported death of retail investing, so we wanted
especially to reach out to you for your own reactions - straight from the front-lines of the self-directed investor universe.
What do you see from your vantage point at the DRIP Investor magazine - and hear from your readers?
Carlson: This year is the DRIP Investor’s twentieth year – and I’m pleased to report that rumors of the death of retail, selfdirected
investing are premature - although, for sure, it’s not as big a thing these days as once it was. And in the longer term, I’m optimistic that we will see something of a rebound.
Despite all the mergers, and more than a few bankruptcies and near-death experiences on the corporate scene, we still track between 1,000 and 1,100 Dividend Reinvestment and Direct Stock Purchase Plans, affectionately known as “DRIPS” - and we have been reporting on two to three new plans a month. But four years after the 2008 market crash we still hear a lot of concerns from individual investors. Some long-term inves- tors have been permanently spooked. Many people continue to voice concerns about the possibility of more “flash crashes” – and the possibility that maybe individual investors don’t belong in this arena any more. Skepticism comes back quickly, even among those who have been staying the course. There has been a big shift to passive investment vehicles, like mutual funds and EFTs from an increasingly risk averse crowd. The demographics are also a problem in that many ageing investors simply can’t afford much if any risk, and have moved entirely to fixed income investments. And this, I’ve been saying, is probably the worst thing a 55 year old investor could do.
OPTIMIZER: What about the sell-side analysts, who once were fairly powerful influencers of individual investor invest- ment decisions? They seem to be a very much endangered spe- cies too.
Carlson: Yes, there is basically no research being published today on smaller and mid-sized companies, and this is a very bad thing for them – and for self-directed investors too, where such companies often have strong natural appeal.
OPTIMIZER: So do you think the retail investor segment can be rebuilt, and maybe brought back to its former size and strength? What would it take to do this?
Carlson: Actually, as I sort of implied above, individuals face the very real risk of seeing their investments chewed up by inflation. Many of them will see their bond funds badly whacked once interest rates start to rise. And we still see considerable interest in the stocks of well known companies that pay good dividends.
My biggest reason for continued optimism about the future of DRIPs is the fact that they really work: In the first issue of DRIP Investor I started an Editor’s Portfolio of six stocks that allowed me to purchase my first share directly through the plan. Back then there were fewer than 10 such companies. Today there are roughly 350 US companies and an equal number of non-US companies that allow you to buy your first share - and all the subsequent shares you acquire through dividend reinvestment and ‘optional cash purchases’ – without a broker. I have held five of the six stocks (one company, Browning- Ferris, was acquired in 1999) from 8/3/1992 through today. Of the remaining five companies, adjusted for stock splits, the stock price of Bristol-Myers is up 88%, Exxon’s is up 462%, PepsiCo’s up 269%, Proctor & Gamble is up 445% and Walgreen is up 684% as of 11/2/12. And that, please note, is before adding in the growth of the Portfolio through the reinvestment of dividends over 20 years. The combination of long-term investing, systematic dividend reinvestment, dollar-cost averaging and no-cost/low-cost investing is a very powerful strategy for wealth creation.
OPTIMIZER: Any other advice to issuers on how to get full value from their DRIPS?
Carlson: Yes; First and foremost, issuers - and their transfer agents – need to recognize that one has to work to get results. They don’t come automatically. Very important, DRIP participants want to see the same high service levels at transfer agents that they have come to expect from Vanguard and Fidelity and other fund agents. There are many alternatives out there. Smart investors are always looking at them - and fees are always a very important issue. So charging a $25 fee to join, or for a transaction, plus maybe 5% on the dividends reinvested is a total no-go for many smart investors.
There’s another very positive thing for Plan sponsors and ser- vicers worth mentioning: Events over the past few years have not endeared people to investing with large institutions. So there is a real opening here for companies that offer “direct investing.” Also, the web-based functions at many plan agents have improved dramatically over the past few years - which is a major plus with many self-directed investors. The consolida- tion of transfer agents has been a good thing too, I think, with fewer, stronger agents to deal with. The number-one thing for issuers and agents to do, in my book, is to continually build awareness where these plans are concerned – and then to make sure that plan features are robust – and fee-friendly.
Editor’s note: The DRIP Investor is required reading, we say, for DRIP sponsors , companies considering a DRIP, or wanting to benchmark and improve plan features – and their plan agents. We are pleased that Chuck Carlson and Horizon Publishing are offering OPTIMIZER read- ers a special, lowest price ever-offered rate to become new subscribers. See form below for details…