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Cash-King Port

The Cash King Portfolio has been renamed the Rule Maker Portfolio.

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11 Steps:
 1: Philosophy
 2: Mastering Finances
 3: Allocating Savings
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 5: Getting Information
 6: Cash-King Criteria
 7: QuaVa & Flow
 8: Ownership
 9: Putting It Together
10: Retirement
11: Getting Answers

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Related Items

• Hall of Portfolios
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• Rule Maker Port
• Boring Port
• Drip Port
• Foolish Four Port
• Harry Jones


Dripping Into
Cash-Kings?

You betcha!
by Phil Weiss (pweiss@homemail.com)

TOWACO, NJ (Nov. 3, 1998) -- From time to time, readers of our Cash-King Strategy Board ask whether or not it is appropriate to invest in Cash-King stocks through Dividend Reinvestment Plans (DRIPs). When Tom, Al, Rob and I were discussing how to manage this portfolio, we considered whether or not to use DRIPs as part of our investment strategy. Ultimately, since we would be adding $2000 to the portfolio every six months to purchase stock in just one company, we decided to go with the convenience of a discount broker.

There were a couple of arguments made for staying away from DRIPs in this portfolio. One was that there is already a Drip Portfolio in Fooldom, which is more than capably run by Jeff Fischer and a couple of other Fools. We didn't really see the need to duplicate that effort here.

Another was that investing through DRIPs requires more record-keeping than your typical brokerage account. After all, with DRIPs there are several accounting issues to keep track of -- the purchase date, the dollar amount invested, the number of shares purchased, etc. If you purchase shares this way regularly over a number of years, you can end up with quite a number of different purchase dates. You also need to keep statements on hand supporting each of your stock purchases. We felt it would be easier just to make purchases twice each year.

But does that mean that the strategy doesn't work for Cash-King stocks? ABSOLUTELY NOT. I have a number of DRIPs of my own. My personal investments consist of purchasing stock in a variety of different ways. If you consider the accounts set up for my son's future, those earmarked for when my wife and I retire, and those held by my investment club, I currently purchase stock every month in varying amounts through DRIPs in several different companies.

Since I use Quicken to track our family finances, the record-keeping requirements of DRIPs really aren't all that onerous. I also have a file for each of the monthly statements I receive for my DRIP stocks. Once a year I go through this file and put all the statements that I need to support my tax basis in these shares into my permanent file. The rest go into the recycle bin. It's not uncommon that I need to keep only one statement per year for each stock, since the information reported on these statements throughout the year is usually duplicated.

I like investing through DRIPs because it means that every month I'm adding money to the stock market regardless of whether the S&P 500 is up or down. This also allows me to take advantage of the benefits of dollar cost averaging (i.e., if the stock goes up in price, I purchase fewer shares, and if it goes down in price I purchase more shares.) In the end, I'm consistently less sensitive to the price of the stock at the time of purchase when I buy through DRIPs.

The second way that I purchase stock is through the reinvestment of dividends. I think it's unfortunate that not all discount brokers provide this service to their account holders, but where possible I have my accounts coded so that dividends are automatically used to purchase more shares of the stock. In the account I have with a discount broker that doesn't allow me to reinvest my dividends, I periodically call customer service to voice my opinion. I think I'll win that small battle over time.

It should be noted that purchasing additional shares of stock held in a brokerage account by reinvesting dividends is not the same thing as utilizing a DRIP account. Purchases through your DRIP account are Optional Cash Purchases. For me, these purchases all come at no cost. Contrarily, any time that you purchase shares by placing a trade through your brokerage account, you are required to pay some type of commission. Reinvestment of dividends by your broker is free as well, but you're not able to use additional funds to purchase more shares without paying a commission.

The third way that I purchase stocks is just like we do here in the Cash-King Portfolio. Periodically, I allocate similar dollar amounts to the purchase of a small block of shares of stock -- never allowing my commission to be more than 1% of my total purchase price. I do this for a couple of reasons: One is to establish an initial position in a stock. Another is when I want to buy more shares of a stock that I already own, particularly when it doesn't have a DRIP plan or what I consider to be a good DRIP plan (the DRIP fees at certain companies make them a very unattractive option).

If you look at the stocks in our portfolio here, you'll see there are a number that offer what I call investor friendly DRIP:

Coca-Cola (NYSE: KO)
Schering-Plough (NYSE: SGP)
Pfizer (NYSE: PFE)
Intel (Nasdaq: INTC)

All these offer DRIPs that are essentially free to investors. Although Gap (NYSE: GPS) and T. Rowe Price (Nasdaq: TROW) do pay dividends, these companies do not have DRIPs. American Express (NYSE: AXP) does have a DRIP, but due to its fees, I don't consider it to be user friendly. Finally, we have Microsoft (Nasdaq: MSFT) and Cisco (Nasdaq: CSCO). These companies do not pay dividends, so by definition they can't offer DRIPs.

Having a good DRIP plan is a great thing for public companies and their shareowners. If most DRIP shareholders are like me, they build up brand loyalty for the products of the companies in which they own stock. I would love to see all of our companies offer fee-free DRIPs someday. Of course, this would mean that Microsoft and Cisco would have to start paying dividends (ideally, very tiny dividends). These companies have done a great job of reinvesting their profits as a means of expanding their business, and, over the long haul, we'll get a lot better return due to capital appreciation than due to dividend income. But a tiny dividend enabling a DRIP plan would be a great development at a business like Mr. Softy.

That's it for tonight. I'll be back tomorrow with some thoughts on family investment decisions in the context of a conversation that my wife and I had when I purchased some shares of stock during the second week of October. For discussion or if you have any questions, please visit the message boards linked below.

Fool on,

Phil

Cash-King Strategy Folder
Cash-King Companies Folder


11/03/98 Close
Stock  Change    Bid 
 AXP   -1 7/16  90.44 
 CHV   -  3/8   80.75 
 CSCO  -1 5/16  63.38 
 KO    +2 1/16  72.94 
 GPS   -1 1/16  59.19 
 EK    -1 15/16 75.94 
 XON   +  15/16 73.00 
 GM    -  7/16  64.75 
 INTC  -1 3/8   90.44 
 MSFT  -  5/8   105.19 
 PFE   +1 1/8   109.25 
 SGP   +  7/16  105.50 
 TROW  -  9/16  34.44 
 

 
                  Day     Month   Year    History 
         C-K      -0.53%   0.93%  12.18%  12.18% 
         S&P:     -0.07%   1.11%  10.42%  10.42% 
         NASDAQ:  -0.69%   0.96%   7.33%   7.33% 
  
 Cash-King Stocks 
  
     Rec'd    #  Security     In At       Now    Change 
     2/3/98   24 Microsoft     78.27    105.19    34.39% 
     2/3/98   22 Pfizer        82.30    109.25    32.75% 
     5/1/98   37 Gap Inc.      51.09     59.19    15.85% 
    8/21/98   22 Schering-P    95.99    105.50     9.91% 
    6/23/98   34 Cisco Syst    58.41     63.38     8.50% 
    2/13/98   22 Intel         84.67     90.44     6.81% 
    2/27/98   27 Coca-Cola     69.11     72.94     5.54% 
     2/6/98   56 T. Rowe Pr    33.67     34.44     2.27% 
    5/26/98   18 AmExpress    104.07     90.44   -13.10% 
  
 Foolish Four Stocks 
  
     Rec'd    #  Security     In At     Value    Change 
    3/12/98   20 Eastman Ko    63.15     75.94    20.25% 
    3/12/98   20 Exxon         64.34     73.00    13.47% 
    3/12/98   15 Chevron       83.34     80.75    -3.11% 
    3/12/98   17 General Mo    72.41     64.75   -10.57% 
  
 Cash-King Stocks 
  
     Rec'd    #  Security     In At     Value    Change 
     2/3/98   24 Microsoft   1878.45   2524.50   $646.05 
     2/3/98   22 Pfizer      1810.58   2403.50   $592.92 
     5/1/98   37 Gap Inc.    1890.33   2189.94   $299.61 
    8/21/98   22 Schering-P   2111.7   2321.00   $209.30 
    6/23/98   34 Cisco Syst  1985.95   2154.75   $168.80 
    2/13/98   22 Intel       1862.83   1989.63   $126.80 
    2/27/98   27 Coca-Cola   1865.89   1969.31   $103.42 
     2/6/98   56 T. Rowe Pr  1885.70   1928.50    $42.80 
    5/26/98   18 AmExpress   1873.20   1627.88  -$245.33 
  
 Foolish Four Stocks 
  
     Rec'd    #  Security     In At     Value    Change 
    3/12/98   20 Eastman Ko  1262.95   1518.75   $255.80 
    3/12/98   20 Exxon       1286.70   1460.00   $173.30 
    3/12/98   15 Chevron     1250.14   1211.25   -$38.89 
    3/12/98   17 General Mo  1230.89   1100.75  -$130.14 
  
                               CASH    $120.62 
                              TOTAL  $24520.37 
  
   
 *Please note: On 8/4/98 $2,000 cash was added to the
portfolio. $2,000 will be added every six months.

*The year for the S&P and Nasdaq is as of 02/03/98

</THE CASH-KING PORTFOLIO>

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