RULE MAKER PORTFOLIO

Rule Maker Portfolio
Rule Maker Drips

By Phil Weiss (TMF Grape)

TOWACO, NJ (Nov. 17, 1999) -- Tonight, I thought that it would be nice to take a break from the world of stock options and financial analysis. Instead, I'm going to discuss one of the best means that Rule Maker investors have at their disposal to purchase stocks -- Dividend Reinvestment Plans, or Drips.

If you're looking for general information on Drips, there's actually a whole portfolio here at the Fool dedicated to the steady-as-she-goes investment style. The Drip Portfolio and its related message boards (Drip Basics and Drip Companies) are great places to look for information. While I'm passing out links, the Drip Port Information page is especially handy for getting answers to a lot of commonly asked questions.

Not surprisingly, there are similarities in the types of companies that the two portfolios look to purchase. We both like companies with a sustainable competitive advantage -- patent protection, industry standard technology, unique manufacturing expertise, a strong consumer brand... you get the idea -- that allows us to buy and hold a company for a number of years, or preferably decades. As you may know, Intel (Nasdaq: INTC) is held in both portfolios.

So without further adieu, here's some basic information on the Drips of our Rule Makers, that is, of course, if they even offer such plans. Since Cisco Systems (Nasdaq: CSCO), Microsoft (Nasdaq: MSFT), and Yahoo! (Nasdaq: YHOO) don't pay any dividends, they can't have Drips. Gap Inc. (NYSE: GPS) and T. Rowe Price Associates (Nasdaq: TROW) pay dividends but, unfortunately, do not have Drips. All five of our other Makers offer Drips to their shareholders.

American Express (NYSE: AXP) offers a Drip, but in my opinion they really shouldn't bother as it's about as unfriendly a Drip as I've seen. The only nice feature of American Express' Drip is that the company will let you start an account through direct investment, so you don't have to use a broker.

AmEx Drip Highlights:

Minimum Initial Investment (Direct)    $1,000.00
Minimum Monthly purchase                  $50.00
Initial Setup Fee                          $6.00
Automatic Investment Fee                   $3.00
Optional Cash Purchase Fee                 $5.00
Commission on Purchases (per share)        $0.06
Dividend Reinvestment Fee  10% of dividend; $0.75 max.
Sale Fee                                  $15.00
Commission on Sales (per share)            $0.12
     

Personally, I won't start a Drip with any company that charges fees for optional cash purchases as they just eat away too much at the returns, particularly if you're investing $100 or less per month, so I'm not planning on starting an AmEx Drip anytime soon. One thing to note is that I don't get concerned about the fees charged to sell stocks held in Drips.

Coca-Cola (NYSE: KO) has a very investor-friendly Drip that's administered by First Chicago. I actually have two Drips with Coke (one for my wife and I, and one for our son) and have transferred shares to relatives as well. The one drawback is that on a couple of occasions there have been deposits that have been mishandled by First Chicago. Since there's no direct investment option, you will need to find a way to purchase your first share. (I purchased the first share of each of my Drips through the Money Paper.)

Coke Drip Highlights:
Minimum Initial Investment               1 share
Minimum Monthly purchase                  $10.00
Initial Setup Fee                           None
Automatic Investment Fee                   $1.00
Optional Cash Purchase Fee                  None
Commission on Purchases (per share)         None
Dividend Reinvestment Fee                   None
Sale Fee                                  $10.00
Commission on Sales (per share)            $0.12
     
Intel's Drip, administered by Harris Trust, is another friendly program. I have two Drips with Intel as well and once transferred a share to a friend. I've never had a problem with this Drip.

Intel Drip Highlights:
Minimum Initial Investment               1 share
Minimum Monthly purchase                  $25.00
Initial Setup Fee                           None
Automatic Investment Fee                    None
Optional Cash Purchase Fee                  None
Commission on Purchases (per share)         None
Dividend Reinvestment Fee                   None
Sale Fee                                    None
Commission on Sales (per share)            $0.07
       

Pfizer (NYSE: PFE) recently changed its Drip to allow for direct investment, and it now allows for weekly purchases. First Chicago still administers this Drip. My personal experience with this one is through my investment club.

Pfizer Drip Highlights:
Minimum Initial Investment (Direct)      $500.00
Minimum Monthly purchase                  $50.00
Initial Setup Fee                           None
Automatic Investment Fee                    None
Optional Cash Purchase Fee                  None
Commission on Purchases (per share)         None
Dividend Reinvestment Fee                   None
Sale Fee                                  $15.00
Commission on Sales (per share)            $0.12

Schering-Plough's (NYSE: SGP) Drip allows for bi-monthly investments. The plan is administered by Bank of New York.

Schering-Plough Drip Highlights:
Minimum Initial Investment               1 share
Minimum Monthly purchase                  $25.00
Initial Setup Fee                           None
Automatic Investment Fee                    None
Optional Cash Purchase Fee                  None
Commission on Purchases (per share)         None
Dividend Reinvestment Fee                   None
Sale Fee                                   $2.50
Commission on Sales (per share)              Yes

So, maybe you're wondering why I'm sharing this information with you when we don't use Drips for the Rule Maker stock purchases. For starters, I use Drips as part of my own investment strategy. Moreover, Drips are one of the lowest-cost ways for individual investors to build up their ownership in great companies. For investors with only a few hundred dollars of savings, no/low fee Drips are probably the best way to get started in stocks without being eaten alive by fees. For individual investors, one of the most important components to beating the market averages is to minimize commissions and other frictional costs of investing.

What I really like about Drips, though, is that they provide such an easy way to invest regularly in the market. I pay my bills electronically through my bank account. That means that all I have to do is spend a minute or two each month requesting checks be sent to any Drip plans in which I would like to buy shares on the next investment date. It helps me to make sure that I'm always increasing the amount of money that I have invested in the market.

Plus, Drip investing has the knack of making me less sensitive to swings in a stock's price. By investing the same dollar amount each month, if the stock price goes up, I buy fewer shares; if it falls, I buy more shares. That way, if the stock goes up, I'm happy because my investment is increasing in value; if the stock goes down, I'm still happy because I get to buy more shares.

The one drawback to Drips is that they do require some extra record keeping. If you have a copy of a program like Quicken or Excel, then it really isn't all that difficult to track your Drip investments.

Finally, just in case you're thinking $100 a month doesn't add up to all that much, I thought I'd also share some information on the way that such an investment made regularly for a period of years can compound:

Future Value of $100/mo. Investment

Number of Years      20         25        30
Total Investment   $24,000   $30,000    $36,000 
 Rates    8%       $59,295   $95,737   $150,030
  of      10%      $76,570  $133,789   $227,933
 Return   12%      $99,915  $189,764   $352,991
          15%     $151,596  $328,407   $700,982
A quick glance at those results reveals that time is an investor's greatest asset. That should give any of us an incentive to start investing regularly as soon as we can. Even small investments can amount to a lot if we commit to making them on a regular basis.

One last thing -- this article wouldn't be complete without a sales pitch, right? The Motley Fool's newest book, Investing Without a Silver Spoon, written by Jeff Fischer, explores all the ins and outs of direct investing, including a section on the exact details and contact info for more than 1,000 companies' Drip plans.

Have a Foolish night.

Phil

What do you think?
Come post your thoughts about tonight's report on our Rule Maker Strategy board. Alternatively, if you have ideas, analysis, or questions about a particular Rule Maker company, take a seat at the roundtable discussion on our Rule Maker Companies board. Finally, if you're new to all this stuff, the Rule Maker Beginners board is the place to get your questions answered.


 




Rule Maker Portfolio

11/17/99 Closing Numbers
Ticker Company Dly Pr Chg Price
AXPAMER EXPRESS-4 7/8$154.63
CHVCHEVRON CORP9/16$96.56
CSCOCISCO SYSTEMS1/4$84.75
DPHDELPHI AUTOMOTIVE SYSTEMS-13/16$16.25
EKEASTMAN KODAK3/4$66.63
GMGENL MOTORS-1 7/16$71.06
GPSGAP INC-3/8$38.38
INTCINTEL CORP-1 13/16$74.75
KOCOCA-COLA CO11/16$59.94
MSFTMICROSOFT CORP-2 5/16$85.00
PFEPFIZER, INC-1/16$33.81
SGPSCHERING-PLOUGH3/4$56.88
TROWT.ROWE PRICE ASSOC-1 1/8$38.13
XONEXXON CORP1/16$80.25
YHOOYAHOO INC-6 3/8$206.19

  Day Week Month Year
To Date
Since
2/2/98
Annualized
Rule Maker -1.04% .82% 2.61% 19.43% 48.70% 24.81%
S&P 500 -.66% 1.05% 3.51% 14.76% 43.91% 22.54%
S&P 500(DA) -.66% 1.05% 3.51% 15.34% 45.68% 23.38%
S&P 500(DCA) n/a n/a n/a n/a 29.11% 15.34%
NASDAQ -.72% 1.50% 10.21% 49.10% 101.89% 48.05%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
6/23/9875CSCO32.865$84.75157.87%
2/3/9859MSFT49.352$85.0072.23%
5/1/9882GPS22.708$38.3868.99%
2/17/9916YHOO126.309$206.1963.24%
5/26/9818AXP104.067$154.6348.58%
2/13/9859INTC50.624$74.7547.66%
3/12/9820XON64.335$80.2524.74%
2/3/9866PFE27.433$33.8123.26%
8/21/9844SGP47.993$56.8818.51%
3/12/9817GM60.399$71.0617.66%
3/12/9815CHV83.343$96.5615.86%
2/3/9856TROW33.673$38.1313.22%
3/12/9820EK63.148$66.635.51%
3/12/9811DPH17.202$16.25-5.53%
2/27/9827KO69.107$59.94-13.27%

Trade Date # Shares Ticker Cost Value LT $ Val Ch
6/23/9875CSCO$2,464.86$6,356.25$3,891.39
2/3/9859MSFT$2,911.79$5,015.00$2,103.21
2/13/9859INTC$2,986.79$4,410.25$1,423.46
5/1/9882GPS$1,862.06$3,146.75$1,284.69
2/17/9916YHOO$2,020.95$3,299.00$1,278.05
5/26/9818AXP$1,873.20$2,783.25$910.05
2/3/9866PFE$1,810.58$2,231.63$421.05
8/21/9844SGP$2,111.70$2,502.50$390.80
3/12/9820XON$1,286.70$1,605.00$318.30
2/3/9856TROW$1,885.70$2,135.00$249.30
3/12/9815CHV$1,250.14$1,448.44$198.30
3/12/9817GM$1,026.78$1,208.06$181.29
3/12/9820EK$1,262.95$1,332.50$69.55
3/12/9811DPH$189.22$178.75($10.47)
2/27/9827KO$1,865.89$1,618.31($247.58)
  Cash: $135.63  
  Total: $39,406.32  


Notes
The Rule Maker Portfolio began with $20,000 on February 2, 1998, and it added $2,000 in August 1998 and February 1999. Beginning in July 1999, $500 in cash (which is soon invested in stocks) is added every month.