While trading fees are very low today, investors are still giving away their hard earned investment money to whichever broker they use to buy stocks in the form of trading fees.  At the same time, an investor would have to acquire enough capital that a trading fee would represent a very small portion of their total investment.  Today many brokerages offering $4.95 trading fees.

If an investor wanted to make sure that their trading costs were under 0.5%, they would have to invest at least $1,000 at a time.  But even if you can acquire this amount for a single purchase, why should investors be willing to pay extra to purchase a stock?  As Vanguard states, markets are unpredictable, costs are forever.

Fortunately, there are alternatives to paying trading fees.  Many companies have automatic investment plans.  These programs are called Dividend Reinvestment Plans, or DRIPs.  While some charge fees for purchases, there are a number of companies that will allow you to purchase shares of their stock for free.  Almost every DRIP allows investors to purchase small amounts of stock at a time, often at minimums of $10, $25 or $50.  Many of these plans even offer free dividend reinvestment, allowing your dividends to purchase even more shares for you.

In addition, buying in small monthly installments allows an investor to dollar cost average into a position.  This helps prevent investors from purchasing stocks at an extreme overvaluation.  And from humble beginnings come great things.  Purchasing $50 of a stock every month that averages 8% growth per year could lead to a position worth nearly $75,000 in thirty years.   

One such DRIP that investors should consider is 3M (MMM).

Company Background

Founded in 1902, 3M sells more than 60,000 products to customers in more than 200 countries around the world. 3M has a market cap of more than $118 billion and is one of the largest industrial companies in the world.

Given its long history, one might think that the company might be guilty of resting on its past success, but this isn’t the case with 3M.  The company spends 6% of sales ($2 billion in 2017) on research and development.  This spending has proven fruitful, as 30% of last year’s sales came from products that didn’t exist five years ago.

Earnings and Dividend History

While many companies experienced drastic earnings declines during the last recession, 3M saw just a 7.6% drop in EPS in 2009.  Since then, earnings have increased every single year.  From 2008-2017, 3M had a compound average growth rate, or CAGR, of 6.4% for earnings.

In the second quarter, 3M beat on both earnings and revenue guidance.  The company earned $2.59 per share in the quarter, $0.01 above both analysts’ estimates and the previous year’s results.  Revenue grew 7.4% to $8.4 billion, coming in $20 million ahead of expectations. 3M saw sales growth in every division of the company, led by Safety & Graphics which generated 16% revenue growth, thanks in large part to demand for personal safety equipment.  In local currency, 3M had 5.6% organic growth.  The company does expect, however, that organic growth will be in the range of 3%-4% for the year.

3M has increased its dividend for the past sixty years, easily one of the longest dividend growth streaks available in the market. The company’s ten-year dividend CAGR is almost 9%.  Based off of projected earnings for 2018, 3M has a dividend payout ratio below 53%.  Shares currently yield 2.7%, much higher than the yield of the S&P 500.

3M’s Dividend Reinvestment Plan

Investors looking to purchase a small amount of 3M can do so through EQ Shareowner Services, formerly known as shareowneronline.com. To enroll in the plan, investors will need to transfer at least one share from their brokerage account to an account at EQ. Once transferred, investors can make one-time optional payments or set of recurring automatic investments for a minimum of $10.  3M pays all purchase and dividend reinvestment fees, though shareholders are responsible for the costs of selling shares.

Conclusion

Trading fees are often very low these days, but why should investors give up any of their investment money when trading?  Dividend Reinvestment Plans can offer investors a fee free way to buy stock and reinvest dividends that can grow to very large amounts over time. 3M is one of the largest industrials companies in the world and demonstrated growth across the board in the last quarter.  Remember that the company held up fairly well during the last recession and has an impressive dividend growth streak. Investors looking to save money on trading fees while investing in a high quality company should consider opening a DRIP in 3M.