FOOLISH FOUR PORTFOLIO

<FOOLISH FOUR PORTFOLIO>

First Quarter Dividend Review
Let's hear it for dividends

by Ann Coleman
(TMF AnnC)

Reston, VA (April 19, 1999) -- We've been seeing a surge in capital gains for the Foolish Four in the last week, but, as much fun as that is, today I want to talk about the other kind of returns Foolish Four stocks generate -- the slow and steady return you get from dividends.

Bo-ring!

With the Dow shooting up like a rocket (although today's rocket, after shooting up 200+ points, fizzled and fell back below where it started), the relatively minor returns from dividends certainly don't seem very exciting, but they are a very important part of the Foolish Four's long-term success.

So far this year, our portfolio has received the first quarter dividends from each of our stocks, a total of $29.45. Please note that we just added in the International Paper (NYSE: IP) and 3M (NYSE: MMM) dividends today, so you will see a jump in the Year-to-date and History returns that is not part of the market's recent surge. Because dividends come in lumps, we don't include them in the monthly or daily returns where they might have a somewhat distorting effect, but they are very much a part of the total returns picture.

With all the market high jinks, we don't want to lose sight of the fact that our Foolish Four strategy is a High Yield strategy. We are buying Dow stocks that have an attractive combination of low price and high yield. Any stock that isn't paying a relatively good dividend will not be chosen. Not only does that help us choose good stocks, those high yields contribute to the bottom line.

That tiny $29.45 contributed about 0.7% to our overall returns. Here is how the dividends we received during the first quarter (January 1 through March 31) break down:

Stck Shrs  Ex. Dte    Div.  Ttl - 1st qtr
CAT  24.00 1/15/99 $0.3000         $7.20
IP   22.00 3/15/99 $0.2500         $5.50
JPM   9.00 3/18/99 $0.9900         $8.91
MMM  14.00 2/17/99 $0.5600         $7.84
Total                             $29.45

Notice that the date listed above is the Ex. Date. We track dividends by the "ex-dividend date" rather than the date the dividend is actually paid. This is because once that ex-date passes, even if you sell the stock, you still get the dividend. (See our Foolish FAQ for more on ex-dividend dates.)

A word on yield. There are a number of ways to look at yield. Even so simple a formula as "annual dividend divided by price" can have variations. For example, you can look at the quarterly dividends paid out over the past 4 quarters to get your annual dividend number. That tells you what the dividend was. But since a dividend is not a dividend until the company's board of directors "declares" it, a more realistic annual dividend is the most recently declared dividend times four. When you are choosing a stock, what you really care about is not the dividends paid in the past but what you will be receiving when you own the stock. Multiplying the most recent dividend by four gives a better estimate of that, and that is the method we and most other sources use when calculating the dividend yield.

But there is another way to look at yield, which is interesting to use for stocks you already own. Instead of using the current price, you use your purchase price. I remember one reader who wrote to me that he was getting a 30% yield on his Exxon (NYSE: XON) stock. That got my attention. He had held the stock for so many years, through so many splits, that his cost-adjusted purchase price was around $10. Exxon was paying $3.00 per share in dividends (shares were in the $100 range at that time). Kind of puts a whole 'nother light on the idea of buying and holding, doesn't it? We won't see that kind of yield for our Foolish Four stocks, which are not likely to stick around that long, but certainly you might want to consider a few high yielding stocks for your long-term buy-and-hold portfolio.

Meanwhile, those boring Foolish Four dividends continue to pile up year after year, good years and bad. Every dollar of dividends gets reinvested at the end of the year to compound and grow. Throughout the 38-year history that our Dow Dividend Spreadsheet covers, dividends have contributed almost 30% of the total cumulative returns. We had a period of unusually high interest rates/yields/inflation in the early '80s, so I am not sure that yield will play as substantial role in the future has it has in the past -- that will depend on macroeconomics -- but even half that is something to appreciate. So let's hear it for dividends!

Fool on and prosper!



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Today's Stock Lists | 1999 Dow Returns

04/19/99 Close
Stock  Change   Last
--------------------
CAT  -2  1/16  61.75
JPM  +3  1/2   136.63
MMM  +4  5/16  84.25
IP   +   3/4   55.75



                Day   Month    Year   History
        FOOL-4   +1.44%  23.97%  27.49%  29.38%
        DJIA     -0.51%   6.69%  14.10%  13.65%
        S&P 500  -2.24%   0.24%   5.22%   5.47%
        NASDAQ   -5.57%  -4.72%   6.97%   8.44%

    Rec'd   #  Security     In At       Now    Change

 12/24/98   24 Caterpillar   43.08     61.75    43.34%
 12/24/98    9 JP Morgan    105.51    136.63    29.49%
 12/24/98   22 Int'l Paper   43.55     55.75    28.01%
 12/24/98   14 3M            73.57     84.25    14.52%


    Rec'd   #  Security     In At     Value    Change

 12/24/98   24 Caterpillar 1034.00   1482.00   $448.00
 12/24/98    9 JP Morgan    949.62   1229.63   $280.01
 12/24/98   22 Int'l Paper  958.12   1226.50   $268.38
 12/24/98   14 3M          1030.00   1179.50   $149.50

              Dividends Received      $29.45
                             Cash     $28.26
                            TOTAL   $5175.34



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