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How – and Why – to Build Your Shareholder Base

Monday, August 27, 2018

What if you could build shareholder consensus as you increase company equity?

A strong direct stock purchase plan (DSPP) might be the answer.

“A DSPP can help your company steadily grow equity with loyal investors who aren’t looking to turn and burn their shares,” says James Volpe, Vice President, Product Management Investment Plans, EQ.

DSPPs allow investors to buy company stock directly through the company’s investment plan versus buying through a broker. According to Volpe, more than 50 percent of publicly traded companies offer DSPPs, making it the most prevalent investment plan in the marketplace.

Shareholder profile

“Active traders or brokers' retail customers hold on to their shares for about four to 18 months," said Volpe. "On average, self-directed investors hold their stock for eight to 10 years.”

“Investment plan participants who buy directly do so in whole dollar amounts, typically reinvesting their dividend and making additional investments over time, which builds their ownership of the company’s stock,” continues Volpe. 

DSPP shareowners have a reputation for voting with management during proxy season. - James Volpe, VP, EQ

Many believe, especially for consumer brands, that a strong DSPP builds brand loyalty alongside investor loyalty. Also, because stock is held in the shareholder’s name – as opposed to a street name when stock is purchased through a broker – companies are able to communicate directly with their shareowners. This can be particularly beneficial during proxy season or when it comes time to vote on legislative action on behalf of the company.

Make your DSPP attractive to investors

A feature that dividend-paying companies can offer is a DRIP – or dividend reinvestment plan. This allows existing shareowners the ability to conveniently reinvest their dividends, gradually building share ownership. Investment plans allow shareholders to buy more stock and grow their investment over time by subscribing to the dollar-cost-average theory of investment.

DSPPs don’t have to be expensive to administer – in fact, there are low or no cost to the company options. Shift some of the cost to participants or offer EQ’s InvestDirect plan, which is paid by participants, saving the company certain routine out-of-pocket expenses.