Drip Portfolio Report
Friday, May 29, 1998
by Jeff Fischer (JeffF@fool.com)


Alexandria, VA (May 29, 1998) --It was a brutal month for Intel (Nasdaq: INTC). The Nasdaq Composite has fallen 5% since May 1, and much of it is attributable to Intel's 12% decline. Having begun the year at $70 1/4, though, Intel's stock has still actually gained nearly two dollars this year. That's hard to believe -- it seems that it's done nothing but decline. After a few years of a flat, boring stock market, a $2 gain might be smiled upon. Perhaps the past three years have spoiled us.

Meanwhile, it's been an expectedly slow start for the humble Drip Port. Expenses associated with getting started still account for the greatest "loss" incurred. We spent $40 for The Moneypaper last July, and $45 more on our three purchases, at $15 each. That $85 is more than we're down on any investment to date. Of course, with only $1,100 invested in stocks and adding only $100 per month, we're going to be talking about relatively small gains and losses for the next few years.

The Past Week. On Tuesday we talked about Campbell Soup (NYSE: CPB) and Intel. Campbell announced the sale of its Delacre biscuits division, while IBM (NYSE: IBM) announced that it was launching a new line of computers with Intel's inexpensive Celeron chip inside. I stated incorrectly that the Celeron is an older generation Pentium. I should have said that it's a stripped down Pentium II -- it isn't an older generation chip, it's a Pentium II that has less bells and whistles. A reader wrote, "The Celeron is the best Intel has to offer (0.25 micron), only it is missing the expensive integrated L2 [Level 2] cache to save money." The lack of the L2 cache does dampen the performance, but lowers the cost. It's a 266 MHz chip that IBM is offering on its lower-line PCs with a beginning price of $969.

Wednesday's rather lengthy column reviewed the many advantages of DRPs. This is the column that you might e-mail to a friend who has yet to begin to invest in stocks. (But then be sure to e-mail them Thursday's column, too -- outlining the disadvantages.) In Wednesday's column General Electric (NYSE: GE) was mentioned as having a good DRP that permitted minimum monthly investments of only $10, much like Coca-Cola (NYSE: KO). What I had forgotten was that unfortunately GE recently announced a new DRP that will include fees.

As of June 1st, optional cash investments in the GE plan will cost $3. That's a hefty fee, but luckily automatic debits from a bank account will only cost $1, which is pretty much the norm for this service -- many DRPs charge a dollar for the automatic debit service. Although having to pay this fee, the investor does save the cost of the stamp and the time cost of having to write and mail a check every month, and this fact might make the service worthwhile. I believe that in the future many DRP plans might charge fees unless you invest automatically through online services or through automatic debits. The paperwork involved with monthly checks through snail mail is too costly compared to the efficiency that is now possible due to computers.

Anyway, GE, unfortunately will have some fees beginning Monday, and reportedly the minimum investment will be increased from the $10 level. To keep investing in GE, I'd recommend using the debit service, swallowing the $1 cost, and perhaps investing less frequently to minimize the cost. You should be able to invest quarterly rather than monthly, I believe.

On Thursday we covered some disadvantages of dividend reinvestment plans, from rigid purchase and sell dates, to increased record keeping, to -- of course -- fees. The column mentioned that some DRPs have fees as high as 5% on optional investments. It should be reminded that this is usually with a caveat: "5% up to $5.00," or some maximum dollar amount. Even so, we avoid DRPs with fees in the Drip Port unless the company really merits our investment.

Following Thursday's column one reader posted on the message board that another disadvantage is, "The stocks always rise on the day of the optional investment!" I tend to see this phenomena happen as well. Consider this: With an astounding 61% of Coca-Cola shareholders owning Coke's stock through a DRP, it isn't very surprising to see the shares rise on the optional investment date. This might be the case with other companies, too, depending on how popular their respective DRPs are. Today, for instance, is the optional investment date for Campbell Soup. The stock is up. Hmmm. (Or should I say, "Mmmm, Mmmm?")

Today the Drip Port bought only $70 worth of Campbell, but if 8,000 people did the same, that's $560,000. Sure, that's a drop in the bucket when compared with the typical $46 million traded through this stock on an average day, but it's still a good sized block of equity to buy at once. (Especially this Friday, with Campbell's trading volume down to around $23 million.) Anyway, I believe that Campbell has some 14,000 shareholders -- as of last year.

We'll be buying $30 worth of Johnson & Johnson (NYSE: JNJ) next week and, being a new month, we'll add $100 in savings to the Drip Port on Monday.

I'm honored to close the column with a Foolish Haiku sent from a reader, who writes, "Be warned that true haikus are three lined poems with 5 syllables, 7 syllables and 5 syllables. My second line has 8, so perhaps this is just a Haiku Wannabe!" Either way, here it is for your enjoyment...

A DRiP is to drop
OCP pebbles in time's pond
to ripple profit.
--T. N. Peterson

See you in June. I hope that you have some Foolish plans for the summer.

Fool on!

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


TODAY'S NUMBERS

Stock Close Change CPB 54 1/2 + 1/16 INTC 71 7/16 -2 1/16 JNJ 69 1/16 - 15/16
Day Month Year History Drip (1.74%) (6.71%) 1.18% (13.83%) S&P 500 (0.62%) (1.88%) 12.41% 14.66% Nasdaq (0.88%) (4.79%) 13.28% 11.61% Last Rec'd Total # Security In At Current 04/13/98 1.000 CPB $53.690 $54.500 05/01/98 9.380 INTC $80.487 $71.438 05/07/98 5.099 JNJ $69.154 $69.063 Last Rec'd Total# Security In At Value Change 04/13/98 1.000 CPB $53.69 $54.50 $0.81 05/01/98 9.380 INTC $754.94 $670.06 ($84.88) 05/07/98 5.099 JNJ $352.62 $352.15 ($0.47) Base: $1500.00 Cash: $286.12** Total: $1362.83

The Drip Portfolio has been divided into 63.266 shares with an average purchase price of $23.710 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: 5/22: Sent $70 to buy more CPB, sent $30 to buy more JNJ.