DRIP PORTFOLIO

<THE DRIP PORTFOLIO>
Direct Investing Defined
Plus, Intel, J&J, Mellon's '99 earnings

by Jeff Fischer (TMFJeff)

ALEXANDRIA, VA (April 27, 1999) -- Yesterday Intel (Nasdaq: INTC) unveiled its fastest Celeron chip to date in hopes of continuing to take market share in the low-end PC market.

The newest Intel Celeron runs at 466 MHz and sells for $169 when bought in quantities of 1,000 by PC manufacturers. To work with the Celeron, Intel released a new chipset as well. Called 810, the chipset integrates 3D graphics and enables software-based audio, modem and digital versatile disk functions that typically require add-in cards. The new chipset reduces the cost of a PC by $50 to $100 depending on price points.

This is a true statement: there has never been a better time to buy a PC. Computers have never been faster, offered more multimedia features, been more compact (if you desire it), or been more useful and more affordable than now. There has never been a better time to buy. Until tomorrow.

As for our stocks...

Intel's earning estimates have been lowered by many analysts since the company's first quarter results, but the consensus estimate still calls for earnings to rise 31% this year to $2.33 per share. The $62 stock trades at 26.6 times that estimate.
Meanwhile, Johnson & Johnson (NYSE: JNJ) estimates have been given a small shot in the arm. A few analysts are raising numbers, although $2.98 remains the consensus for 1999. The stock hit a new high today and closed at 34.2 times estimates. Earnings are expected to rise 12% this year.

With 12% long-term growth projected and a forward P/E of 34.2, J&J sports the healthy premium of most reliable, high-margin pharmaceutical-based companies. The stock has gained 65% since our initial purchase 18 months ago -- hard to believe for such a giant company, but it isn't without merit given the market's return and J&J's business strength, especially its pharmaceutical business.

Mellon Bank (NYSE: MEL) trades at 20.5 times its 1999 earning estimate of $3.61 per share. We are sending $100 to Mellon Bank tomorrow morning (as announced on Friday) in order to continue to bring the holding up to speed with our other investments (as far as the "amount invested" in each).

Now...

Before we begin another serious company study (remember that we have our Watch List to consider before long), we're going to provide fresh direct investing information for our newer investors, or for Fools who have yet to invest in a direct investment plan. (How could you not!) As we offer facts, remember that the Drip message boards are always open for business, too, and the help that Fools provide there is unparalleled.

Today, we begin at the beginning.

Direct Investment Plans


There are two types of direct investment plans:

Dividend Reinvestment Plans (DRPs)

and...

Direct Stock Plans (DSPs)

The benefits offered by every direct investment plan that we're interested in include the ability to:

- Invest small amounts of money on a regular basis
- buy more shares when prices are lower, and less when they're higher (as a result, you don't fret over the stock market's volatility)
- Reinvest dividends directly into more stock
- Avoid commissions and other costs
- Vary your investment amounts monthly, or don't invest at all when you wish
- Diversify your stock portfolio even with very little money
- Sell shares readily

...and much more.

Dividend reinvestment plans are more prevalent than direct stock plans (which are also called direct initial purchase plans, or DIPs). Nearly 1,100 companies offer dividend reinvestment plans, while over 450 companies (and growing) provide direct stock plans. Partially due to the Internet, direct stock plans will likely outnumber dividend reinvestment plans in a handful of years.

Both plans allow an investor to purchase shares of stock directly from a company in amounts that can range from $10 per month to $50,000 per month without cost, and almost all plans allow dividend payments to be reinvested in more stock. The only cost with a majority of these plans is a one-time startup fee that averages between $12 to $15, and a similar fee to sell stock. Usually, all of these plans are administered through a transfer agent. A transfer agent is a financial firm, such as a bank, that handles the plan's transactions and record keeping. You only need to be aware of transfer agents because they are the entities that you usually transact with when using direct investment plans, even though it'll often seem as if you're dealing directly with the companies in which you're investing.

Usually it is the large, long-established, dividend-paying company that offers either type of direct investment plan.

So, what're the differences between the two plans? They're slight and are mainly encountered at the outset.

To enroll in a company's dividend reinvestment plan, or DRP, you usually must be a registered owner of at least one share of the company's stock. In contrast, to enroll in a direct stock purchase plan, or DSP, you can begin to purchase shares directly from the company immediately. It's that simple: you typically must own at least one share of a company's stock to enroll in its DRP, but you needn't be a shareholder to begin most DSPs. Once you begin, both plans are very similar in function and in purpose.

Each type of plan has slight advantages and disadvantages. The largest difference involves the money needed to start. Dividend reinvestment plans usually require you to own one share to enroll, meaning you typically must spend $60 to $100 to begin. By contrast, direct stock plans allow you to immediately enroll. However, you usually must start these plans with a minimum investment that can range from $250 to $500. So, DRPs typically require a smaller investment to start.

While it's important to understand the differences, it isn't necessary to contemplate them any more than we already have. A company will either offer a dividend reinvestment plan or a direct stock plan, but you'll decide where to invest based on a company's merits, not on the plan that it offers. The plans are equally beneficial, no matter what startup quirks they may have. What's more important is that you start to invest sooner rather than later. The Fool will offer a list of all DRP and DSP plans in the near future. But the list is a mere commodity. You can find listed information for all company plans (some 1,600 of them) at other sites, including www.netstockdirect.com and www.moneypaper.com.

Fool on!

Make a Living Foolin' Around.

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4/27/99 Close

Stock  Close    Change
JNJ   101 15/16 +1 3/4
INT   62 1/4    -2 3/16
CPB   42 1/16   -7/8
MEL   74 3/8    +1 13/16
          Day    Month   Year   History
Drip     (0.69%) 5.89%  6.20%   20.78% 
S&P 50 0  0.20%  5.94%  11.18%  45.09% 
Nasda q  (1.88%) 5.71%  18.68%  63.27% 


Last Rec'd Total # Security  In At   Current
 02/01/99  8.092   CPB      $52.852  $42.063
 03/04/99  19.468  INTC     $40.130  $62.250
 03/09/99  9.076   JNJ      $74.910  $101.938
 03/08/99  6.977   MEL      $64.293  $74.375
 
Last Rec'd Total # Security In At   Value  Change
 02/01/99  8.092    CPB    $427.68 $340.37 ($87.31)
 03/04/99  19.468   INTC   $781.24 $1211.88 $430.64 
 03/09/99  9.076    JNJ    $679.89 $925.18  $245.30 
 03/08/99  6.977    MEL    $448.56 $518.90  $70.34  


Base:  $2400.00
Cash:  $24.33**
Total: $3020.66

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.


</THE DRIP PORTFOLIO>