DRIP PORTFOLIO

<THE DRIP PORTFOLIO>
Splitting Mellon
Plus, "Reinventing Intel"

by Jeff Fischer (TMFJeff)

ALEXANDRIA, VA (April 21, 1999) -- Johnson & Johnson wasn't the only company to report a healthy first quarter. Our guy Mellon Bank (NYSE: MEL) chimed in Tuesday with a 12% increase in operating earnings over the last year, while its return on assets held strong at 1.84%. Mellon also announced an 11% rise in its dividend payment -- a beautiful thing to see regularly -- to $1.60 per share. That results in a 2.25% yield on the current share price of $71, up from 2.00%.

Looking closer, our cost basis in Mellon is $64, so on that foundation we're now earning a 2.5% annual yield. Our original share was bought at $48. That puppy is now earning a 3.3% dividend yield, presumably forever -- or, that is, until the next dividend increase, at which point it'll earn an even higher amount. (Mellon stock is far better for long-term savers than a savings account, that's for certain.)

We've discussed the power of increasing dividends in the past. If you own a strong company for ten years -- such as Johnson & Johnson (NYSE: JNJ ) from 1988 to 1998 -- your original shares could earn a 9% dividend yield after 10 years thanks solely to annual dividend hikes. This is truly the case with J&J over the past decade. Had you bought J&J soon after the movie Wall Street was released, you would enjoy not only new stock highs, but a 9% dividend yield on your original shares. (That could be us, the humble Drip Port, in 10 years.) J&J has increased its dividend for 36 consecutive years.

Even Intel (Nasdaq: INTC) increases its dividend. When we first bought the stock it yielded 0.10%. The share price is now higher but it yields 0.21%. Our $40 cost basis shares are actually earning an average dividend yield of 0.3%. Okay, that's far from huge, but it's three times the initial yield that our first shares earned.

Back to Mellon Bank.

The company also reported a 2-for-1 stock split effective May 17, 1999. Mellon is the second Drip Port stock to split. Intel was first. J&J, closing above $100 today, is a good bet to be third. Stock splits don't mean incredibly much, but it does mean that we'll own twice as many shares and buy twice as many shares when we send our monthly payments; however, value is not created or lost. (Please see the Fool FAQs for more on splits.)

Mellon reported earnings per share of $0.87, up 12% and one cent above expectations. The biggie, fee revenue for the quarter was $789 million, up from $698 million in the prior-year period (and the first quarter of 1998 included $22 million of fee revenue from a discontinued business). Excluding one-time numbers, fee revenue increased 11%. For all of the many numbers, please see the approximately 300 page (very nice details, Mellon) press release that covers the first quarter.

You can also listen to taped comments from Mellon's senior vice chairman and chief financial officer, Steven G. Elliott, regarding the first quarter by calling 412-236-5385 until 5 p.m. EDT on Tuesday, April 27, 1999. All systems seem go (it's easy to say that with a long-term perspective -- short term anything could happen). At $71 per share, Mellon trades at 19.6 times 1999 EPS estimates.

Reinventing Intel and a "Sale" Update


Our fictional sale of Intel isn't doing us any good yet. We pretended to sell at $58 1/2 on the recommendation of a Wise analyst who foresees a slow summer. Any Fool could foresee a slower summer (and has), but a Fool isn't paid six or seven figures a year to do so. Our prediction: Intel will have a slow summer (compared to other seasons) just as it did last year, but its business will end the year on a strong note. It's hardly a big surprise if this happens. Actually, the potential for surprise is mainly to the upside given that everyone expects the dog days of summer to hit. Anyway, Intel is sitting $1/16 below our fictional sell price.

Instead of selling, we hope that Intel will hold steady or decline so that we can periodically buy more. Intel has invested in over 200 companies in the past three years (a record) and the company is far from focused on chips alone. Brian sent me an article on Intel and said it's a must read for insight on the company's future. An Intel employee on our message board recommended it. So, curl up and check out this Forbe's Intel article when you can: Reinventing Intel.

To discuss the article, visit us on the Drip Companies message board or on the Intel board.

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4/21/99 Close

Stock  Close    Change
JNJ    100 3/4  +4 1/2
INTC   58 7/16  +1 7/8
CPB    44       +7/8
MEL    71 1/16  +1/8
            Day   Month    Year    History
Drip      3.00%   2.65%    2.95%    17.09% 
S&P 500   2.29%   3.87%    9.01%    42.29% 
Nasdaq    3.26%   1.08%    13.48%   56.12%  


Last Rec'd Total # Security  In At   Current
 02/01/99   8.092    CPB   $52.852   $44.000
 03/04/99   19.468   INTC  $40.130   $58.438
 03/09/99   9.076    JNJ   $74.910   $100.750
 03/08/99   6.977    MEL   $64.293   $71.063
 
Last Rec'd Total # Security In At  Value  Change
 02/01/99  8.092    CPB   $427.68 $356.05 ($71.63)
 03/04/99  19.468   INTC  $781.24 $1137.65 $356.41 
 03/09/99  9.076    JNJ   $679.89 $914.41  $234.52 
 03/08/99  6.977    MEL   $448.56 $495.7   $47.23  


Base:  $2400.00
Cash:    $24.33**
Total: $2928.23

The Drip Portfolio has been divided into 100.036 shares with an average purchase price of $23.991 per share.

The portfolio began with $500 on July 28, 1997, adds $100 to invest every month, and the goal is to have $150,000 in stock by August of the year 2017. Due to the slow nature of dollar-cost-averaging, we don't expect to seriously challenge the S&P 500 for the first 3 to 5 years as we build an investment base. The long-term advantages of dollar-cost-averaging still overcome the short-term disadvantages, however.(NOTE: our investment in Campbell Soup is all but frozen due to fees instituted in its DRP.)

**Transactions in progress:
03/22/99: Sent $100 to buy more MEL.


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