Drip Portfolio Report
Monday, August 4, 1997
by Jeff Fischer (TMF [email protected])
and Randy Befumo (TMF [email protected])

ALEXANDRIA, VA, (August 4, 1997) -- You may want to call some companies for information in the next few days. If you're thinking of studying our investments in order to determine whether or not you want to invest in them as well, you should get the company information. Simply dial up, ask for investor relations, and then ask for an investor packet. What a great country, eh? The companies that are initially being called are:

Coca-Cola 1-404-676-2121

Fannie Mae 1-800-366-2968

General Electric 1-203-373-2211

Intel Corp 1-800-628-8686

Schering-Plough 1-201-822-7000

And these companies have been called for Randy Befumo (TMF Templr) because he's out of town, and because he's extremely lazy, too:

Kansas City Southern 1-816-983-1303

Owens Corning 1-800-GET-PINK (1-800-438-7465)

Now, these are two stocks that Randy is initially interested in, but he's going to have to convince me and perhaps you, too, after, or as, he convinces himself. Randy is great at analyzing companies, a truly knowledgeable Fool in all regards, but I initially look at these balance sheets and I think... hmmm.

I see OWENS CORNING (NYSE: OWC) with $1.3 billion in debt and $13 million in cash and equivalents as of June. Not pretty. I see the stock has a 60 month annualized return of 4.6%. Horrible! A 5-year CD would have beat it. The past twelve months the stock is up only 3.2%. No change in recent history. No sudden resurgence. But if Randy finds his thesis accurate, he'll argue that things are turning around at the company for several reasons, which will result in the stock finally rising from the dead, granting both share appreciation and price-to-earnings multiple appreciation. Will it keep rising for twenty years, though? Can we make a serious commitment to it? We'll see what Randy has to say when he presents his argument here.

KANSAS CITY SOUTHERN (NYSE: KSU) does everything from railroad operations to transaction-processing, to mutual fund management. That's right! Bit of the "Wise" in this company. I like companies that focus on one industry and work to be the best. Randy does, too. This company he found recently, though, and something caught his attention at least initially -- enough to investigate it and consider it. We'll see what he has to share. The company recently had nearly $1 billion in debt and only $11 million in cash and equivalents, while sales have declined from $1.08 billion in 1994 to $847 million in 1996. Meanwhile, the stock has appreciated at an annualized rate of 26.5% over the past five years, beating the market. Over the last three years, though, the annualized return has been only 7.8%.

Randy is looking for multiple expansion (price-to-earnings multiple) as well as improved earnings growth at both companies in the future -- the old "one-two punch," which helps a stock rise on at least two accounts. Seeing how both stocks have languished over the past three years, perhaps he's found something ready to recover. He has discussed the new management focus at Owens Corning with me briefly, and he did just recently find both candidates after combing through the hundreds of possibilities. He hasn't outright supported them yet, but he's building arguments for them and will do so in front of us. It will be interesting!

This week Randy will explain what we're looking for in each company that we're going to buy over the next twenty years, and he'll run some of our initial considerations through the paces, including the two mentioned above. I'm sure that his column will spread some sunlight over the possible green grass that he sees in the two companies that I just initially questioned. More than anything else, though, we all should share each other's thoughts. Please head on over to the DRP message folders on the Fool to speak your mind about companies and your DRP successes or lessons.

I'm sure that many of us will have thoughts to share about the following topic: It's a beloved stock for many people, but it's usually thought to be overvalued. We'll take a close look at COCA-COLA (NYSE: KO) this week and consider the argument that it's overvalued, and we'll see how the stock might be valued five years from now. I'll present my argument for beginning to invest in the company NOW, through a DRP plan. Then, within the next several business days (four to five days, I'm estimating) we'll make the portfolio's first buy announcement and send the check.

To close -- before a few paragraphs containing more information about the DRP process -- we'll share some interesting stories. In the news last week was the story of a woman who had a salary of $15,000 but charitably left $18 million to a hospital. She had been investing in stocks in small increments over the past four decades. Thanks to readers for sending the story along. Another amazing story is that of Ann Scheiber. She began with $5,000 and ended with $22 million after about forty years. Her biggest investment was Schering-Plough. We'll take a closer look at these stories later.

More DRP Information, such as Beginning, Purchase Prices, and                                                 Selling, and Time-Lags

To begin a DRP plan with any company, you usually need to own one share of the company's stock. The public companies that offer DRPs can be found on the Web, at www.moneypaper.com, for one. After you decide upon a company in which to invest, if you're setting up the DRP on your own you would buy one share of the company's stock through a broker and have the share registered in your name (not "street name" as most broker-held stocks are registered). Then you call the company for its DRP information and enrollment forms. However, a simpler process is to use a service like The Moneypaper or others that you can find through searching Yahoo! on the Web. This way you needn't worry about using a broker. You send your check to the service and they buy your first share of stock and enroll you in the company's DRP.

We're using such a service because it's easier and because many people beginning DRPs don't have enough money to open an account with a broker in order to buy their first share of stock.

Once your DRP has begun, you receive a monthly statement that gives your current account balance and provides an address to which you can send any additional money, usually per month. Meanwhile, any dividends that you receive are automatically used to buy more stock, and show up automatically on your statement. You only need to confirm once that this is what you want done with dividends.

Most DRPs charge you nothing to invest additional money every month. Coca-Cola and Intel: zero fees. Thus, the only fee with DRPs occurs when you buy your first share. Either you pay a stock broker's commission, like normal, and a small fee to have the stock certificate put in your name; or you pay a service like The Moneypaper. In The Moneypaper's case, you can enroll in a DRP for $20 through their "Temper of the Times" service. The form is on their Web site. $20 is as good a deal as we've found. After that, you're ready to roll. No fees ahead!

Some of you have written to us about the time-lag of DRPs. To initially begin a DRP, no matter how you go about it, takes about six to eight weeks on average. That's the time that it takes for a share to be bought in your name, registered, and for you to become enrolled in the company's DRP and receive your first statement. After that, it's much more timely. You receive monthly statements from most Dividend Reinvestment Plans and you can send monthly checks in order to buy more stock.

You usually know the approximate price that you pay for any additional stock because each Dividend Reinvestment Plan buys the stock on a specific date, or over a few specified days, as stated in the plan's information packet. Intel's plan buys the stock for you on the first of each month. If you send your check by the third week of the month, you know that you're getting more stock on the first day of the next month. On July 1st, Intel's plan bought its members shares at $69. A sweet deal. On August 1st, the DRP shares were bought at around $91 to $93 per share. Within a few weeks the DRP members receive a statement telling the exact purchase price. Today the stock is up to $96 3/4. Intel has had a strong five weeks (and twenty-six years).

Selling shares (which we don't foresee doing) is mechanically not much different from buying: on your monthly statement you enter that you want to sell shares. The shares will usually be sold within a week or two of your request, and you'll receive the check in the mail. The plans are elegantly simple once they're in place. It's like sending a check each month to the electric company, except the check is actually being invested in a great stock. One bit of advice, though: you do need to be organized and keep all of your monthly statements for tax reasons.

I reiterate all of this because I want everyone to be clear on what we're doing here. Judging from the questions that many of you have, I everyone is still getting up to speed. It takes some reading to be clear. The sooner the questions are answered, the sooner we can get to more of the good stuff -- the stocks!

Give those companies listed above a call if you're interested, and call any others that you may wish to. Ask for DRP information and investor information packets.

We're going to enjoy looking much more closely at our potential companies, beginning tomorrow -- finally!

Fool on!

--Jeff Fischer, Fool