Buy Stocks Without Paying A Brokerage Commission

You've heard of no-load mutual funds, the kind you can buy without paying a sales commission.

Now meet "no-load stocks." No stockbroker will call you about them. Probably not even the companies that sell them will pitch them to you.

But if you know how, you can buy stock, without ever paying a brokerage commission, in hundreds of publicly traded companies, including well-known national names like Exxon, Motorola and General Electric.

The phrase "no-load stocks" was coined - and trademarked - by Dow Theory Forecasts Inc., publisher of an investment newsletter.

One of its newsletters, the DRIP Investor (no, this is not all a big joke!), promotes investing in stocks through companies with dividend-reinvestment plans (DRIP).

Through these plans, many companies let shareholders use their dividends to buy more stock without a brokerage commission.

For investors who don't need dividends for income, this is a painless way to build a bigger nest egg in stocks.

Some companies let shareholders make additional payments to buy even more shares. The latest wrinkle: Some companies accept cash payments even from non-shareholders.

Example: Puget Power

A prominent local example is Puget Sound Power & Light Co. in Bellevue. Any Puget Power shareholder or customer can send the company a check for as little as $25 or as much as $20,000. (The $20,000 is an annual limit. If you want to buy more than that, you must use a broker.)

On the first and third Fridays of every month, the company issues new stock to all who have sent in money. The price is the average of high and low trading prices that week.

Puget Power's DRIP is popular. Bill Fritz, manager of investor services, said 46 percent of the company's 65,000 shareholders participate.

The company has allowed customers to become new shareholders on a no-commission basis for the past 10 years. But, except for a one-time notice in billings sent to customers a decade ago, Puget Power has not promoted the direct-buy plan for new shareholders. That's because of fear of running afoul of Securities & Exchange Commission regulations concerning the sale of stocks, said Bill Fritz, manager of investor services.

The phrase "no-load stocks" comes from Charles Carlson, editor of the DRIP Investor newsletter and author of a 1992 book, "Buying Stocks Without a Broker."

The book outlines several "model portfolios" using DRIPs, includes a chapter titled "My Favorite DRIPS" and lists hundreds of companies with the plans, including some well-known Northwest names: Boise Cascade, Washington Mutual Savings Bank, Weyerhaeuser, U.S. Bancorp and West One Bancorp.

Though Carlson promotes no-load stocks and companies with DRIPS, they're not for everyone.

Obviously, an even moderately active stock trader would not care much about accumulating tiny amounts of additional stock every quarter - and would probably prefer the convenience of having stocks registered in a broker's name instead of on a company's books.

Lose on a no-load

And the absence of broker's commissions does not deter a stock from dropping in price. Just as you can lose money on a no-load mutual fund, you can lose on a no-load stock.

But if you don't need the income from dividends and you're inclined to hold stocks for the long term, taking advantage of DRIPS makes a lot of sense, especially if you continue to believe in the company.

Dividends received in cash often have a way of being spent. In the long run, you might be better off to let them "drip" into your pool of liquid assets.

Send your questions to: It's Your Money, Seattle Times, P.O. Box 70, Seattle, WA 98111. Or send it by fax to 382-8879 or call 464-3126.