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Using DRPs: An Approach Focused on Value With Downside Protection

by Wayne A. Thorp, CFA

Using DRPs: An Approach Focused On Value With Downside Protection Splash image

In this period of market instability, many investors are looking for shelter from the tempest.

One way to stabilize your portfolio returns is with dividends. Why? Remember that total return consists of price appreciation and dividend income, and while prices go up and down, dividend income tends to be steadier.

A conservative, low-cost approach to investing in dividend-paying stocks is with dividend reinvestment plans (DRPs or DRIPs); particularly those that sell initial shares directly to the public (direct purchase plans or DPPs/DIPPs). Direct purchase plans allow you to bypass a broker, and often the commissions they charge. With these plans, dividend payments immediately go to work for you with little or no transaction costs. [Our annual guide to direct purchase plans begins on page 13 of this issue.]

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Wayne A. Thorp, CFA is a vice president and senior financial analyst at AAII and editor of Computerized Investing. Follow him on Twitter at @AAII_CI.


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