Companies establish DRIPs in order to increase the base of stable investors. This provides a source for raising capital, and helps to create product loyalty. These plans open stock market investing to people who otherwise could not afford stocks, and participation enables investors to add to their investments periodically often with as little as $10.00.

Usually, you can start participating in such a plan once you have registered at least one share of the company's stock in your own name (not a brokerage house's name). To enroll in a plan, contact the DRIP administrator (transfer agent or the company's shareholders relation department) to request a dividend reinvestment enrollment form and plan prospectus. If you are not a shareholder of record; you can acquire your first share through a stock broker. Once enrolled in a company's plan, additional optional cash investments may be made to purchase additional shares directly through the plan. You can liquidate your holdings by placing a sell order with the DRIP Administrator or have the shares transferred to a broker for liquidation. The Administrator performs the liquidation on specified dates after receiving the request in writing.

There's also something called a Direct-stock purchase plan (DSPP) that takes the DRIP concept one step further by allowing investors to make initial purchases directly from the companies. All other features, not pertaining specifically to dividends, are identical to that of dividend reinvestment plans. The number of companies offering DSPPs exceeds 300, up from approximately 100 at the end of 1996, with new plans rolling out almost daily.

Dividends that are reinvested are considered ordinary income for tax purposes. Companies will send 1099 forms at the end of each year showing the amount of dividends reinvested. Companies will also send statements to the investor after each purchase of stock with reinvested dividends or optional cash payments.

Plans can differ in a variety of ways, such as the fees charged, restrictions imposed, and discounts offered. The company's plan prospectus provides detailed information on all advantages and disadvantages of the plan, therefore, should be carefully reviewed before enrolling in the plan. But Market Guide can help you get started by summarizing key information in a clear manner that makes it easy for you to quickly compare plans offered by various companies.

Here's an example of the Market Guide DRIP Report for McDonald's (the stock we've been using to illustrate the other Market Guide reports):

The first two items of the Plan Specifics table tell you that this is not just a DRIP, but also a DSPP, a plan that allows an investor to make an initial stock purchase through the company. You can make your initial investment by purchasing shares directly from the company if you start with at least $1,000. Instead of paying a brokerage fee, this company will charge you only $5.00 to make that first purchase. The table also gives you additional information about this plan:

• Certificate Safekeeping: This company will holding purchased shares in your, and certificates for these shares are not usually issued unless requested.
  
  
• Accepts Foreign Investment: This company does not accepts DRIP/DSPP investments from foreign investors.
  
  
• Partial Reinvestment: This plan does not permit participants to receive a portion of their dividends in cash while having the remaining portion of their dividends reinvested for additional shares.
  
  
• IRA Account: This plan does not permit participants to use the DRIP/DSPP accounts as IRAs. The Internal Revenue Service code requires that a financial institution act as a custodian for an IRA. Participants who wish to invest IRA funds through DRIPs/DSPPs, must have a bank act as a custodian of the IRA to make those investments.

The Service Fee table outlines the various fees that are imposed in connection with the plan. In the example depicted here, there are fees for reinvestment of dividends and sale of plan shares. Note: these fees seem small, but they do require some attention. They are vastly lower than the commissions one might have to pay in a traditional retail stock broker, even a conventional discount broker. But the internet brokerage forms that recently emerged are driving trading costs to much lower levels. It's possible that fees imposed by some plans may exceed what you would pay through an internet brokerage firm. This is balanced by the fact that DRIPS are most likely to appeal to the sort of investors who may not be comfortable with the concept of on-line brokerage.

The Optional Cash Investments table provides information about the extent to which participants who are enrolled in the plan may send voluntary cash payments to the administrator to accumulate additional shares.

• Minimum Investment indicates the minimum optional cash investment accepted by the plan per investment.
  
  
• Maximum Investment indicates the maximum optional cash investment accepted by the plan per year, per quarter, per month, per week.
  
  
• Frequency of Purchase indicates how often the plan administrator purchases additional shares with the optional cash investments of plan participants.

Some plans allow participants to accumulate shares at discounts from prevailing makret prices. The extent, if any, to which a company's plan permits this can be seen in the Purchase Discounts table.

The automatic deductions table tells you if it is possible to automatically purchase shares through a deduction programs. Some plans will allow you to do this through payroll deduction, automatic deductions from you bank account, or automatic purchases charged to a credit card.

The following DRIP Report tables summarize basic information about the company and its stock. Of special note is the data on the Dividends table that tells you certain key dates in connection with the company's dividend policy: the last payment date, the last ex date, and the normal dates on which dividend payments are made over the course of the year. The last table at the bottom of the Report gives you important contact information relating to the plan.