Drip Portfolio Report
Tuesday, March 3, 1998
by Jeff Fischer (JeffF@fool.com)


ALEXANDRIA, VA (Mar. 3, 1998) -- Several Fools have written asking why we plan to buy more Johnson & Johnson (NYSE: JNJ) over the next few months and not any Intel (Nasdaq: INTC).

The answer?

Precisely because last fall we were buying only Intel every month and not Johnson & Johnson. Intel was the only stock that we owned.

So far we've invested $694 in Intel and $212 in Johnson & Johnson. You've probably noticed that "As Intel goes, so goes the Drip Port." More important than correcting this, though, is the simple fact that we want a balanced portfolio for several reasons:

  1. We've done the research to find great companies all around, and we don't currently prefer one company that we own over any other (INTC, JNJ, CPB -- draw straws, I like them all). To do months of research on several industries and then continue to build up a larger position in one company (Intel) over the others doesn't make sense.

  2. We don't want a portfolio where one stock primarily determines the overall return simply because we've sent it more money.

  3. We want to balance the amount that we send to each company, and with that we'll balance the risks, too.

Add to these reasons the fact that Johnson & Johnson is a more defensive, less volatile stock that pays a much larger dividend and you can see why it's better to balance the two holdings now rather than months or years later. And remember that after we begin to buy Campbell Soup (NYSE: CPP) we'll have that company to "meld" into the portfolio as well.

Understand that our need to direct funds rather than merely invest in every company each month is a result of building a real-money portfolio from scratch, while showing you the thought process going into each buy as it happens (which takes months, as you've seen). This is something that no one online or off-line has ever done before. Rather than having a perfectly balanced portfolio from the beginning, we have a real-life portfolio just as a person at home would when beginning with modest savings.

Imbalanced investments will be an issue for a few years in our young portfolio. By the time that we're buying Campbell Soup in earnest, we'll probably have already sent $600 to both Intel and Johnson & Johnson. That might mean that for several months we'll only buy Campbell in order to build up that position. Once the positions are closer to even we'll send equal amounts to each company, as merited, going forward.

So that's why I plan to send our entire $100 in savings each month to Johnson & Johnson -- beginning this month. This isn't written in stone (if Intel keeps dropping like a stone, we might send it $25 or something next month), but realize that over the coming months one of our aims, whenever feasible, is to build up our Johnson & Johnson position.

We'll buy our next shares of Johnson & Johnson on March 10. We sent $50 to the company's transfer agent in late January. JNJ's investment date is usually the 7th of every month (or the closest date after), but on months when the company pays a dividend (March, June, September, and December), the investment date is moved back to the second Tuesday of the month, which in this case is the 10th of March. (Thank you to Fool "JPR" for this information). So we'll be getting more shares and our first dividend payment from Johnson & Johnson next week.

The dividend, as mentioned, is one other reason that we want to build our J&J holding. Johnson & Johnson pays a respectable dividend and we want to collect it and have it reinvested. Intel's dividend is very small in comparison, and dividends do matter. Chuck Carlson's book Buying Stocks Without a Broker shares that from 1984 to 1994 the S&P 500 gave a total return, with dividends reinvested, of 282%. Without the dividends being reinvested the S&P returned only 175%. Over twenty years, our reinvested dividends are going to be a very substantial part of our return.

By the way, Intel paid its quarterly dividend of $0.03 per share on March 1. That money was used to buy more shares for us on March 2. We'll update the numbers, small as they are, soon.

Tomorrow will be an update on the Campbell Soup Company situation and then the column will share what we're going to dive into after we look at Johnson & Johnson. So which industry will soon captivate us for weeks and months while we learn and search for a new buy? We'll decide tomorrow. I've got to flip a coin tonight. (Just kidding.)

See you on the message boards. Eat more soup and Fool on!

Jeff

FoolWatch -- It's what's going on at the Fool today.


TODAY'S NUMBERS

Stock Close Change INTC $85 5/16 -2 5/16 JNJ $74 1/2 -1/4
Day Month Year History Drip (1.47%) (2.80%) 13.17% (3.63%) S&P 500 0.41% 0.26% 8.41% 10.58% Nasdaq (0.09%) (0.75%) 11.89% 10.25% Last Rec'd Total # Security In At Current 02/02/98 8.066 INTC $79.929 $85.313 02/09/98 2.498 JNJ $64.902 $74.500 Last Rec'd Total# Security In At Value Change 02/02/98 8.066 INTC $644.72 $688.14 $43.42 02/09/98 2.498 JNJ $162.13 $186.10 $23.98 Base: $1300.00 Cash: $439.75** Total: $1313.99

The Drip Portfolio has been divided into 54.538 shares with an average purchase price of $23.837 per share.

The portfolio began with $500 on July 28, 1997, adds $100 on the 1st of every month, and the goal is to have $150,000 in stock by August of the year 2017.

**Transactions in progress:

2/21/98: Sending $50 to buy INTC.

2/21/98: Sending $50 to buy JNJ.