Direct Stock Purchase Plans – Why? Why Not?

Direct Stock Purchase Plans (DSPPs) are investment vehicles primarily geared for individuals.   They let people become shareholders in a stock for the first time, and steadily build their holdings in that stock inexpensively over time.   The plan methodology of a DSPP is the same as for a Dividend Reinvestment Plan (DRiP).   The difference between the two is you can become a first-time holder in a stock via a DSPP; and, a DSPP can accommodate dividend reinvestment but it doesn’t promote it as a primary function of the plan – indeed, it is not necessary for a company to even pay a dividend to have a DSPP.   (For history buffs, DSPPs came along in 1995 when trade settlement shortened to 3 days from 5, and the SEC saw the value of letting issuers and transfer agents offer book-entry stock directly to shareholders as an alternative to brokerage accounts.)

Why should a company offer a DSPP, and why should someone invest in one?   Let’s look at both sides…


For the Issuer

  • Magnet for stock purchases
  • Goodwill gesture to shareholders
  • Accumulates loyal investors
  • Can help proxy voting results
  • Can quietly raise equity capital
  • Shares can not be shorted
  • Plan fees can be largely shareholder-paid
  • Directly-registered holders can be directly reached, including to promote the company’s products and services
  • More retail holders can counter excessive institutional ownership of the company

For the Shareholder

  • Inexpensive way to buy and hold stock
  • No intermediary players (broker)
  • On-line access to records/trades
  • Automatic investments available
  • If you are an institutional investor, and the DSPP has a “waiver discount” feature, you can quietly buy shares at a discount


For the Issuer

  • A little more work for Investor Relations
  • Some additional company expense
  • Non-retail company stocks do not generate as much DSPP demand as retail stocks

For the Shareholder

  • Stock prices are not quoted upon trade
  • No multiple-stock statements
  • Cost-basis calculations more challenging
  • DSPPs are not as cheap as they once were; issuers are passing more costs back to plan participants

Net-net: Shareholder Service Solutions® believes the advantages of a DSPP to an issuer and its shareholders far outweigh the plan’s modest costs and challenges.   Yes, small shareholders can be a nuisance and yes, retail brokerage accounts are a readily available, alternative vehicle.   But when you have a DSPP it says you understand the value of all investors; you understand the value of small shareholder loyalty; you are patient in your acquisition of equity capital; and you are simply smart in availing the company of all avenues of shareholder support.