Investing What Is a Direct Stock Purchase Plan (DSPP)? Direct Stock Purchase Plans Explained in Less Than 5 Minutes By Brian O'Connor Brian O'Connor Brian O'Connor has over 40 years of experience as a writer covering investing, assets, markets, and more. He has written for The New York Times, The Wall Street Journal, CreditCards.com, Bloomberg News, and more. Brian has won awards for his writing and is a nationally syndicated columnist, editor, and author, and consultant for marketing and custom content. learn about our editorial policies Updated on May 31, 2022 Reviewed by Anthony Battle Reviewed by Anthony Battle Anthony Battle is a CERTIFIED FINANCIAL PLANNER™ professional. He earned the Chartered Financial Consultant® designation for advanced financial planning, the Chartered Life Underwriter® designation for advanced insurance specialization, the Accredited Financial Counselor® for Financial Counseling and both the Retirement Income Certified Professional®, and Certified Retirement Counselor designations for advance retirement planning. learn about our financial review board Share Tweet Pin Email In This Article View All In This Article Definition and Example of a Direct Stock Purchase Plan How Direct Stock Purchase Plans Work Pros and Cons of a Direct Stock Purchase Plan Definition A direct stock purchase plan (DSPP) is a program that allows individual investors to buy shares of stock directly from the company. Photo: primeimages / Getty Images A direct stock purchase plan (DSPP) is a program that allows individual investors to buy shares of stock directly from the company. While not offered by all publicly traded firms, direct purchase plans are available at some of the biggest and most recognized companies in the U.S., including Campbell Soup, Walmart, Coca-Cola, Intel, and Starbucks. Direct purchase plans avoid broker fees and can be a good way for small investors to add individual stocks to their portfolios starting with relatively small amounts of money, typically $500 or less. Find out more about direct stock purchase plans, how they work, their pros and cons, and what they mean to individual investors. Definition and Example of a Direct Stock Purchase Plan As the name indicates, a direct stock purchase plan allows an individual investor to buy shares of a company’s stock from the company itself or, most commonly, through the company’s selected agent. Investors will need to set up an account and deposit a minimum amount. Most plans work by having investors electronically transfer money to their accounts. Alternate name: Direct purchase planAcronym: DSPP For example, buying stock in the warehouse shopping firm Costco costs $15 to set up an online account through Computershare, a direct-purchase agent that handles direct share purchase programs for hundreds of companies. Purchase fees for Costco can range from $3.50 for a one-time investment to $2 per transaction as well as a per-share processing fee of 3 cents. The minimum investment for a new shareholder is $250, which drops to a $25 minimum for recurring purchases or purchases made by existing stockholders. That highlights one of the advantages of direct-purchase programs, which give the option to buy a fraction of a share. In late November 2021, Costco stock was trading at nearly $540 a share. Investing the minimum $25 would allow an investor to buy about 0.045 of a share (about 1/22nd). Most direct share purchase plans also cap the maximum amount individual investors can spend. In the Costco plan, that cap is $250,000 a year. How Direct Stock Purchase Plans Work Direct purchase plans are a relatively simple and inexpensive way for investors to get started with individual stocks. The option to reinvest dividends is an added benefit. Note Because of the way direct purchase plans are constructed and managed, investors putting money into those stocks should be prepared to buy and hold shares for the long term. Direct purchase plans collect orders and make the actual stock purchases on a set schedule at an average price for the day, week, month, or another period, which means you don’t know the specific share price when you place a purchase order. These specifics—as well as the charges, requirements, and limits—are disclosed in detailed plan documents, which should be read thoroughly before investing. Some plans, such as the Costco one mentioned above, offer the ability to place limit and market price orders to sell. Another form of direct stock purchasing is through dividend reinvestment plans, which allow investors who hold shares of a company to automatically buy new shares with the money paid out as dividends. Note Many direct purchase plans offer the option of directly reinvesting dividends, also for a fee. With the advent of other online stock trading platforms, accompanied by a drastic reduction of brokerage fees in the past few years, direct purchase plans aren’t as big a value as they were in the past. Investors who want more choices for companies to invest in or to be more active traders will likely find direct purchase plans too limiting. Direct purchase plans also won’t work for investors who want to trade options or move money in and out of stocks for tax-loss harvesting purposes. Pros and Cons of a Direct Stock Purchase Plan Pros Simple and stableDon’t need a broker to buyDividend reinvestmentGood for long-term investing Cons Purchase price and date aren’t knownCan be more expensive than online trading platformsPlan comes with rules and restrictions Pros Explained Simple and stable: Direct purchase plans are uncomplicated and inexpensive, and they tend to be offered by stable, well-established companies that often pay regular dividends. Don’t need a broker to buy: The plans allow investors to bypass brokers and to buy fractional shares of big companies for as little as $25. Dividend reinvestment: These plans also allow investors to reinvest their dividends and manage their accounts and stock records online. Good for long-term investing: Direct stock purchase plans can be good investment vehicles for the long term, especially for investors who use dollar-cost averaging through a regular schedule of stock purchases. Cons Explained Purchase price and date aren’t known: Investors who buy stock through direct purchase plans don’t know the exact purchase price or when the transaction takes place, making cost-basis calculations and price transparency more challenging. Can be more expensive than online trading platforms: More investment choices are available through growing online trading platforms, which can be as cheap or even cheaper than some direct purchase plans’ costs. Plan comes with rules and restrictions: Investors need to review the plan documents closely to understand the terms and rules of each company’s specific direct stock purchase plan. Key Takeaways Direct stock purchase plans (DSPPs) can be an easy, inexpensive way to get started buying individual stocks.The companies offering direct purchase plans tend to be well-established and stable, and many pay regular dividends.DSPPs allow investors to purchase fractional shares for as little as $25.Investors don’t know what the exact share price will be when they buy a direct purchase plan.The plans are offered through a limited number of companies, and they can limit trading choices and strategies. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Computershare. "The Coca-Cola Co. - Direct Stock Purchase Plan." Accessed Nov. 23, 2021. Computershare. "Costco Wholesale Corp. - Direct Stock Purchase Plan," See "Minimum Investments" and "Online Investment Fees." Accessed Nov. 23, 2021. Yahoo! Finance. "Costco Wholesale Corporation (COST)." Accessed Nov. 23, 2021. Computershare. "Costco Wholesale Corp. - Direct Stock Purchase Plan." Accessed Nov. 23, 2021.