Mellon's DRP Fees Questioned
Jeff on the scene with answers
by Dale Wettlaufer (DaleW@fool.com)


Alexandria, VA (August 5, 1998) --Well, darn it, I think our goose might be cooked with Mellon Bank Corp.'s (NYSE: MEL) Drip program. Of the two companies in the financial services industry that I like the most, both Norwest (NYSE: NOB) and Mellon have questions regarding fees attached to them. I personally don't know that much about the workings of Drip programs, as I was recruited to help out with the specifics of looking at these companies. So I will leave the commentary on the Drip fees and that sort of thing in Jeff Fischer's (TMF Jeff) capable hands.

Here's an email I received this morning, which I forwarded to Jeff. His response on the subject of Mellon Bank's DRIP fees follows. ----------

Dale,
Just a thought, have you looked at the Mellon DRIP plan/prospectus yet? NO PARTIAL DIVIDEND REINVESTMENTS on OCPs for shareholders holding LESS than 100 shares of common stock, and the minimum per month purchase limit is $100. At today's share prices and based on only $100 dollars per OCP, your idle noninvested partial dividends are going to be sitting around for a very long time in Mellon's pockets earning them some free interest before you even have a chance (SOMEDAY) of purchasing ONE WHOLE SHARE with your dividends.

Just like a bank, restrictions for you, free money for them -- and we haven't even signed up yet. What's next?

Although Mellon may be a good candidate based on stats, their plan specifics leave a whole lot to be desired compared to many other "user friendly" financial Drips that are out there with other sound companies. Weighing the good financials with the current "bad" DRIP plan of Mellon leaves one in a catch-22 -- the good company with the bad plan. What is one to do?

A lot of companies and transfer agents these days seem to be prone to increasing fees and restrictions as DRIPS become more popular (i.e. Campbell Soup)... it's like "turning to the dark side."

Restrictions now usually mean more restrictions later on. I don't see Mellon changing their plan for the better, especially as compared to Norwest's already friendlier plan, which is already in place. All other things being equal and based on the ever present supply of "what ifs," I'd have to side with the here and now and opt for the better current plan of Norwest. --------------

And here's Jeff's reply:

Hello,
The way you wrote "NO PARTIAL DIVIDEND REINVESTMENTS" for those who own less than 100 shares makes me think that a clarification is needed.

We don't want partial dividend reinvestment anyway. We want to reinvest all of our dividends, not just part of them, so we're OK under the condition you described. Meanwhile, I can understand Mellon restricting the partial reinvestment service to those holding only 100 shares or more.

The $100 per month minimum just means that we would only invest in Mellon every few months. Once we have a larger portfolio of holdings, we'll need to stagger by month anyway. It's already nearly reaching that point with only three holdings.

Good points, though, and we'll be sure to determine all aspects of the DRIP before deciding to buy any stock.

Fool on,
Jeff
----------

I have to confess, this is all Greek to me, so I'm going to leave it in your and Jeff's capable hands. I'd just like to pick the best financial services company for our investment dollar and not deal with these issues. However, it's important to Jeff and those who know about the actual economics and mechanics of DRIPS, so I'll abide by whatever Jeff says is kosher. If neither Norwest or Mellon is suitable, we will choose another company.

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


8/5 Close

Stock Close Change CPB $52 -1 7/8 INTC $84 1/8 +2 5/16 JNJ $74 15/16 +1 7/16
Day Month Year History Drip 1.31% (1.25%) 10.95% (5.52%) S&P 500 0.87% (3.50%) 11.44% 13.67% Nasdaq 0.13% (4.51%) 13.86% 12.18% Last Rec'd Total # Security In At Current 06/30/98 3.017 CPB $54.259 $52.000 07/01/98 9.724 INTC $80.239 $84.125 07/07/98 6.010 JNJ $69.708 $74.938 Last Rec'd Total # Security In At Value Change 06/30/98 3.017 CPB $163.70 $156.88 ($6.82) 07/01/98 9.724 INTC $780.21 $817.99 $37.78 07/07/98 6.010 JNJ $418.95 $450.37 $31.43 Base: $1800.00 Cash: $386.05** Total: $1811.30

The Drip Portfolio has been divided into 76.682 shares with an average purchase price of $23.474 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:
7/22/98: Sent $60 to buy more CPB, and $40 to buy more JNJ.