Campbell's Fees
Should Drip Port buy, sell or HOLD
by Jeff Fischer ([email protected])
Alexandria, VA (August 10, 1998) --We received confirmation of Campbell Soup's new dividend reinvestment plan this weekend. Pa-tooey! Bad soup!
The transfer agent has apparently sold Campbell Soup (NYSE: CPB) on a new plan that, yes, does have more conveniences. You can buy shares anytime rather than once a month; you can sell through the phone any day; you can set up your account in an IRA; and you can also use automatic cash payments through your bank. These are nice features, though largely unnecessary for us. What hurts us, though, are the new fees. Modest fees are understandable if a DRIP program is vastly improved as a result of them, but the fees involved with this new plan are quite high, especially for our tastes.
-- The minimum optional investment by check or money order is now $50 and has a $5 processing fee, plus a 3 cents per share commission.
-- You can invest a minimum of $25 automatically through your bank account every month, but this investment must be made monthly and the fee is $2 plus 3 cents per share.
-- The reinvestment of dividends has a processing fee of 5% up to $3, plus a 3 cent per share commission (I'm not sure what the 5% fee is, if that isn't a commission already!).
-- Each sale has a fee of $15 plus 12 cents per share.
-- The new IRA option is a nice feature and, like most IRA DRIPs, it has a $35 annual fee. Unfortunately, coupling this fee with the purchasing fees will prove expensive if you're only investing, say, $500 per year in the DRIP.
So let's consider all of this. In the Drip Port we're not readily able to commit even $25 per month to Campbell Soup through the automatic investment program (let alone a greater amount), and even if we did commit to $25 per month, we'd pay a whopping 8% fee every time that we invested! Unfortunately, because the Drip Port invests only $100 per month total, we can't commit much more than $25 to be invested automatically every month in any one particular company. And anyway, even if we invested $50 per month automatically with Campbell we'd still pay a large 4% fee, which is a much higher fee percentage-wise than we'd ever think of paying.
There is a second way that we might continue investing, though.
We could save money over time and invest a lump sum every once in a while in order to lower the fee's percentage bite, although we'd still pay a $5 fee whenever we made a voluntary investment by mail, plus 3 cents per share. So even a $100 investment would incur a 5% immediate loss due to the $5 investment fee. If we waited two months and saved $200 to invest, the $5 fee would decline to the 2.5% maximum commission that the Motley Fool recommends anyone pay for any investment that they make.
But the opportunity cost is this: we won't be dollar cost averaging into our other companies while saving to buy $200 worth of Campbell, and we'll end up averaging into Campbell much less frequently, too. And we'd still be paying a significant fee anyway.
It's clear that this new plan is designed for people investing much larger sums than the Drip Port (or, arguably, the average American). The plan is still a fine service if you're investing $1,000 each time. (After all, what's a measly $5 fee on a thousand buck investment?). But it's a bit rich for us and for anyone investing less than $200 per month in optional cash payments, or less than $100 per month in the automatic investment program. (If you can invest $100 per month automatically in Campbell, the $2 fee each month would be slightly less than the 2.5% max that the Fool recommends -- still not great, but not horrible considering the options).
Campbell's new plan goes into effect September 14, so what should we do? Well, we have a few options.
1. The Drip Port can sell its $200 worth of Campbell Soup before the new plan is installed (meaning this month), pay the old current fee of $10, and roll the money into a new food and beverage investment. Unfortunately, with the portfolio being so young and small, even this minimal selling cost is significant to us. Also, we'd be selling at a loss no matter what, due in part to the commission. It hurts to sell a company as strong as Campbell Soup at a loss.
2. The Drip Port could keep its position in Campbell and invest very irregularly, sending money when the stock seems low and when we've saved a larger amount to invest. In conjunction with this, we would begin a DRIP with a new food and beverage company as well, and that would take over as our more regular investment in this industry.
One argument for continuing to invest in Campbell is that the business we're investing in hasn't changed. But, then again, I would argue that the investment scenario indeed actually has changed. In the past we didn't experience a 5% loss whenever we invested in Campbell. Now we will -- 5% or at least 2.5% in most cases. Investing is about achieving a maximum return while investing in a way that you understand and enjoy. These fees certainly detract from the possibility of a maximum return, and from the chance to enjoy the process all that much.
A third option...
3. The Drip Port could keep its Campbell shares but not buy any more. That's right. We could sit on these shares for 19 years. After our most recent $60 investment is added, we'll have $220 invested in Campbell Soup. We could send a large amount this month ($100 or perhaps even more) and take advantage of the final free investment date, and then we could sit on the stock and spend time over the years asking Campbell to reconsider the fees.
Crazy, you say?
Well, let's say we invest $100 in Campbell to end August (a last hurrah!). That would give us $320 in Campbell stock. $320 compounding at 11% annually turns into $2,324 in 19 years. That's actually nearly 10% of the total amount of cash -- $24,500 -- that we're investing over a twenty-year period. But, of course, it's less than 1.6% of the total $150,000 that we hope to have by the 20-year anniversary, so it would by no means amount to much of the portfolio on a percentage basis.
Yet, the constant reminder of Campbell's beginning (and its quick end as a steady investment for us) might alone make it worthwhile to keep for many reasons. Meanwhile, we could hope that Campbell would eventually alter its plan to be more consumer friendly again. A final thing to consider with this option, though, is that the dividends we receive over the years will always be charged a formidable 5% fee -- that is, unless we choose not to have them reinvested.
OK. What do you think the Drip Port should do with Campbell Soup? 1) Dump it this month and don't look back. 2) Keep it and invest in it only periodically, but make a concentrated effort to do so in large amounts a few times a year while buying another food and beverage stock, too. Or 3) buy a chunk this month before the fees come into place and then sit on the stock forever, not planning to buy more but not planning to be completely silent on the issue, either. Meanwhile, we'll begin to invest regularly in another food and beverage company instead.
Those are just three choices. Perhaps you have a better ideas. Please post your opinion on the Drip companies message board on AOL and/or on the Web. We'll try to decide what to do by tomorrow, and certainly we'll reach a conclusion within a few days. After this "dilemma" is addressed we'll continue with our regularly scheduled program.
Fool on!
--Jeff Fischer
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