Dividend Reinvestment Plan (DRIP)
For the millions of Americans who own stock in publicly traded companies, it was a great idea. It made investing that much easier, efficient, and less costly. It was promoted as one of the best ways to invest over a period of time and enjoy the advantages of dollar cost averaging.
The idea was simple – a Dividend Reinvestment Plan (DRIP). If you owned a stock that paid a dividend, instead of receiving a check each quarter, you would authorize the Plan to “buy” more company stock with either no commission or very low commission. Using the Plan, you would be accumulating more shares on a regular basis. And, even better, the Plan would allow for the purchase of fractional shares since the dividend might not be sufficient to only buy whole shares. And, over a period of time, the fractional shares would eventually add up to full shares.
Many companies added another feature. They allowed you to send in a separate check to buy shares through the Plan in addition to the purchases made by the dividends. Since there was no commission or a very low commission, it was an effective way to accumulate more shares in a company that you felt had a good future. And, you received a quarterly statement from the Plan’s agent so that you could see how many shares you bought and at what cost. What could be better?
The major challenge for DRIP participants was to keep a record of the cost of the shares as they were accumulating since if the shares are sold at some future date, the participant will need the cost basis of all the shares. Participants described the calculation as a nightmare and some only as a headache, especially for people who participated in DRIPs for many years. They would need to know the dollar value of the dividends received over the entire period of years, the number of shares purchased each time and the cost of those shares – whole and fractional.
If they sold only some of the shares or transferred them to someone else, the cost basis of those shares needed to be identified. The question they faced was - should all the purchases be grouped and an average price calculated or should specific groups of shares be valued? It takes persistence and patience to do this calculation when the time comes. But, there is a simpler way to deal with the shares you may have accumulated in your DRIP. I suspect that you already know what I will suggest!
Yes. Donate those shares, whole and fractional, to The University at Albany Foundation. First, you will receive a charitable deduction for the market value of the shares you contribute. Second, you will avoid paying any commissions. Third, you can designate your gift to a purpose of your interest. Depending on the value of the stock, you may even be able to establish a named endowment at UAlbany.
For more information, please contact the Office of Gift Planning.