Quite a number of you, it appears, have seen this recent ad from Stansberry & Associates, trying to sell you a subscription to the 12% Letter by Tom Dyson. The teaser begins with the intriguing promise that there’s a “Postal secret” that will let you become a “1 share millionaire.” So what are these “compound shares” that you can buy?
“Whether stocks go up or down… some companies return tens of thousands of dollars a month starting with just a single share. But you can’t buy them on the market: They’re available through the U.S. mail.
“‘It’s almost impossible not to make money… ‘
says the San Francisco Chronicle.”
(Sorry — I added the bold to that last quote. Couldn’t resist)
So what on earth is this? Some more info …
“In short – it’s a little-known way to buy ONE special and very powerful share of stock delivered through the U.S. Postal Service… no matter where you live. The power in these special shares lies in the fact that they multiply in number and in value, without you doing a single thing.”
This is probably starting to sound a bit familiar to those of you who’ve been washed up here on the shores of Gumshoe Island for any length of time … it is, of course, another (thinly, perhaps) veiled teaser for Dividend Reinvestment Plans.
I’ve written about these several times before, from this same newsletter and editor — they’ve been great ads, and they’ve clearly garnered a lot of attention, the first time I wrote about this was when Dyson was calling this kind of investing an “801k plan,” and I’ve had thousands of people ask me what on earth that could mean. Then the market tanked, and people began to be just plain angry about 401ks, so anything with a similar name had to be thrown out the window. Thus was born the “424 Dividend Boost” teaser ad, which essentially sold the same ideas.
And today, when it seems like we’re all in need of that “lottery ticket” that will help us build a fortune from the ashes of a burned-out market, the tease is that you can begin now to become a “one share millionaire.”
Of course, it might take you a few decades to get there … and maybe the patterns of history will not allow us to repeat the last 40 years of relative affluence and growing stock market returns to build these dividend-reinvested fortunes … but certainly this kind of scheme is still widely followed by those who buy individual stocks for the long run.
You can read my earlier articles on this if you’d like more commentary, but essentially a Dividend Reinvestment Plan (DRIP) is a way of building up your holdings in a single stock, sometimes with discounted pricing, over a long period of time. You buy the shares not through a broker but directly through a company and/or its transfer agent, and the account is held by them — the “postal secret” bit is that many of these transactions are done by mail, though often they can also be set up online. You can set it up so that you invest $25 or $250 or whatever each month in those shares, and the dividends are reinvested.
And hopefully, since you’ve chosen a once and future great company to start (unlike, of course, the companies that used to be great, like General Motors or Bank of America), your dividends will grow, the share base will grow, and eventually each dividend will be a massive multiple of the original investment you made in the company.
If you’re interested in this, here’s one example that’s hot today: Microsoft. They just announced some very disappointing news today (though most other companies in the country would probably gleefully trade press releases with them), and MSFT has over the last couple years, through dividend increases and a falling share price, slowly become a stock with a decent dividend yield if you buy it today.
So let’s say you want to enroll in MSFT’s DRIP program (I’m not telling you to, just providing an example). First, you visit the company’s web page, search around on their investor relations page, and find that they do have a direct purchase/dividend reinvestment program in which you can enroll. It’s handled by their transfer agent, American Stock Transfer & Trust. So you visit the transfer agent’s site and see what the terms of the program are — in this case, Microsoft requires a $250 initial purchase price, a minimum of $25 for subsequent purchases, and they will reinvest your dividends for free but they provide no discount on purchases or reinvestments. You can sign up online, and hopefully it grows nicely for generations.
Of course, if you want to build a portfolio of DRIP investments you’ll want to have probably at least a dozen or so companies that are all financially healthy and that cover a broad range of industries. One positive is that now seems a nice time to be picking up what used to be called “blue chip” companies, with many of them having massive cash hoards and strong current dividend yields. Some negatives, even if you accept the long-term dividend reinvestment premise as a good investment strategy, is that enrolling in a whole bunch of DRIP plans is a hassle, these holdings are often not terribly liquid (some require transactions by mail, many take at least several days for purchases and sales), and regular brokers have now gotten inexpensive enough (or free, in some cases) that you can easily set up your own portfolio and reinvest your own dividends without dealing with a bunch of transfer agents.
So is this a magic bullet? Of course not, it’s just another way of building wealth, based on the assumption that strong dividend paying companies will grow over time, and that they will slowly grow their dividends … and if you can hide those holdings away where it’s hard to sell them, and where you won’t be watching them every moment, they might have a chance, economy permitting, to build into a very nice portfolio that throws off a lot of income in a few decades.
What Dyson is really selling is a newsletter that searches for investments with high yields, and in many cases these can be the kinds of large companies that sponsor DRIPs, the stocks that Dyson has “teased” us with before have been a mixed bag and it’s been a small sample, so I have no idea what his overall performance has been. You can certainly subscribe to his newsletter if you like, but don’t buy it just to find out what a “1-share millionaire” is … buy it because you want to see if his ideas are good ones, and hold him to whatever standard you think is appropriate when deciding whether or not to cancel before the “trial period” is up. Like most large newsletter publishers, Stansberry will give you a money back guarantee for a certain period of time, though every publisher has different procedures and some make it harder than others (ie, depending on the newsletter you may not be able to email or cancel online, you might have to talk to someone on the phone and resist some further sales pitches).
If you believe that statement that “it’s almost impossible not to make money” then you probably haven’t paid a lot of attention to the stock market over the last six months. In the short term it’s always possible to make money, when you’re dealing with individual stocks it’s always likely that some of them will lose money, and even in the long term we certainly know that many stocks go down. Of course, historically speaking and using average, dividend included returns, you probably will make money with stocks, but that’s little comfort these days.
Which is probably why they had to go back a ways to get that “impossible not to make money” quote — it really did appear in a San Francisco Chronicle article, but it was back in 1997, two market crashes ago.
So … we’ve had all kinds of talk in these pages about DRIP plans before, and about dividends … anything more to add? Feel free to throw in your two cents below. Or one cent, if it’s been a bad week.
Personal Capital is an advertiser with Stock Gumshoe, but Travis also uses it every day for his personal accounts and finds it invaluable. Here's what he said: "They offer a great (and genuinely FREE) 'second opinion' for your financial plan, but what I love most is their automated financial dashboard -- it will look at all your assets and debts, tally up your asset allocation, project where you'll be at retirement, and suggest ways to manage risk or improve returns. It's free, I think their free tools are great, and I think it's worth checking out -- you can do so here.