DRIPs at a Discount
Plus, Touchstone Friday

by Vince Hanks (TMFElwood)

NORTHVILLE, MI (June 25, 1999) -- Before launching right into tonight's report, I'd like to pause for an important commercial message from our sponsor:

Hi! This is Daring Danny of Danny's Den of Discount DRIPs! Have we got a deal for you today. We're slashing prices so low, our competitors think we've lost our DRIP-discounting minds! Over one-hundred DRIPs are going at a discount, many selling at 1998 prices! We're talking crazy-mad prices, folks! Come on down pick a DRIP today. The first 49 visitors will get a mood ring absolutely FREE!... {CLICK}

I don't blame you changing the channel before the testimonials began. Is there anything less convincing in an advertisement than a compensated testimonial? Daring Danny's message is a good one, however, although it could stand to be toned down a bit.

Many investors are not aware that some DRIPs will allow their plan members to purchase shares and reinvest dividends at a discount to the current market price. That's right, you heard correctly -- you can purchase shares of stock in a number of companies and realize a paper profit the first minute they're in your possession. If you find this surprising, the number of discount plans might also surprise you. An Internet search of NetstockDirect revealed 112 plans that currently offer discounts -- most only apply to reinvested dividends, but there are a number that include optional cash purchases (OCPs) as well.

I know what you're thinking. Why would a company sell shares to the public at a price that's lower than the current market rates? Would you believe it's a sympathetic gesture by corporate America aimed at aiding the small, individual investor?

I suppose not.

DRIPs allow companies to raise capital in a much more cost-effective way than the customary means of a secondary stock offering. By allowing discounts on investments, companies hope to generate more plan sales, and therefore further facilitate new share issuance. This both saves the company money and increases its base of loyal shareholders. A win-win situation for them, as well as for you.

If you're interested in investigating DRIPs that offer discounts, look for utilities, banking, and real estate investment trusts (REITs). The majority of plans that offer discounts reside in these three areas. As always, be sure to contact the company and learn the specific details of each plan before investing. Discounts, along with other plan features, change frequently. Plus, remember, while discounts are nice, they're only worth it if they come with a quality company.

Touchstone Friday. When I look at this week's reports, I can't help being reminded of how dramatically the Internet has changed our daily lives and made the world a much smaller place. George and Jeff are half a planet away, yet they easily fulfill their Foolish duties electronically. In many situations like this, the barrier of distance that previously led to incredible logistical headaches has been greatly reduced, if not eliminated. A click here and a keystroke there, and people from virtually every corner of the Earth can meet in Fooldom each day to share, learn, console, and amuse. Amazing.

Ringing in from Italy on Monday, George showed us how we can best take advantage of this fascinating technology at our fingertips to research potential investments and investigate various financial issues of interest. Then on Tuesday, Jeff shouted out from France, sharing firsthand impressions of the difficulties Coca-Cola is having in that neck of the woods. As we look more closely at the food and beverage industry in the weeks ahead, we'll want to consider the long-term impact, if any, of this recent scare. Meanwhile, back at the homebase (due to that nasty electronic tether situation), Brian dialed up the telecommunications industry on Wednesday, and then Jeff rounded out the week on Thursday, digging deep into the delay of Intel's Coppermine chip.

Have a great weekend, Fools!

Call Your Boss a Fool.

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6/25/99 Close

Stock  Close    Change
JNJ    90 5/8    -15/16
INTC   55 5/16   +1/4
CPB    42 1/8    -1/2
MEL    34 3/16   +5/16
           Day     Month    Year    History
Drip      0.01%  (1.37%)   (3.52%)   9.73% 
S&P 500  (0.04%)  1.03%     7.58%   40.10% 
Nasdaq   (0.05%)  3.32%    16.42%   60.16% 

Last Rec'd Total# Security  In At   Current
 05/03/99   8.134   CPB    $52.793  $42.125
 06/01/99  19.479   INTC   $40.137  $55.313
 03/09/99   9.076   JNJ    $74.910  $90.625
 06/07/99  22.453   MEL    $33.488  $34.188

Last Rec'd Total# Security In At   Value   Change
 05/03/99  8.134    CPB   $429.42  $342.64 ($86.78)
 06/01/99 19.479    INTC  $781.82 $1077.43 $295.61 
 03/09/99  9.076    JNJ   $679.89  $822.51 $142.63 
 06/07/99 22.453    MEL   $751.91  $767.63  $15.72 

Base:  $2700.00
Cash:    $24.31**
Total: $3034.52

The Drip Portfolio has been divided into 110.619 shares with an average purchase price of $24.408 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 plan.)

**Transactions in progress:

06/16/99: Sent $100 to buy more INTC (finally).