ALEXANDRIA, VA (Sept. 17, 1998) --One can enroll in the dividend reinvestment plan of Mellon Bank (NYSE: MEL) after owning just one share, and Moneypaper's Temper of the Times service does offer enrollment for Mellon. We'll be using Temper, but you can enroll in the plan by any means possible once you own one share in your name, whether you get that share from Temper (which means automatic enrollment) or a discount broker.
If you have additional funds, you can invest directly with Mellon and bypass any broker or DRP service. To do so, you need to begin with a minimum $500 investment in Mellon. Your first investment through the direct plan is charged $6 (still less expensive than brokers and other DRP services).
Complete details on the Mellon direct purchase plan are available here, from http://www.chasemellon.com. Again, if you don't wish to begin with $500, you need only buy one share of Mellon and have it registered in your name (as the Drip Port did with its other investments), and then enroll yourself in the Mellon dividend reinvestment plan or have a DRP service buy the first share and enroll you. (For more information on DRPs, please see the Drip Port information pages and the Fool's School on the topic.)
Once enrolled, there are no fees for additional investments with Mellon, and the minimum investment (whenever you do invest) is $100. The Drip Port will obviously be staggering its monthly investments in its companies in the future, as it has in the past. One month we might send $50 to both J&J and Intel, and the next month send all $100 to Mellon. We'll begin slowly with Mellon, however, and as banks are arguably "hotter or colder," more variably, than other industries, we'll take advantage of the "colder" times and of economic downturns that typically bring banking stocks lower. Mellon recently declined from $80 to $57, and it's now at a reasonable valuation based on known information.
In part, the Drip Port wants to begin slowly with Mellon because -- even more so than with Intel -- financial stocks are often granted lower valuation multiples (to earnings) than are more beloved industries, or those that are perceived as being less "cyclical." This is partially why these stocks provide higher dividend yields, which we're eager to take advantage of. The lower price at which we can buy shares (and thus the higher the yield), the better. Some folks argue that dividends don't matter, but we know that they do, and very much so.
Even so, we're not looking for a dividend yield alone from Mellon, we're also expecting market-beating capital appreciation from this leading company over the long term. This return probably won't be as smooth in coming as it might be when investing in a leading consumer products company, but over time it should hopefully arrive, and any bumpiness in the middle won't matter -- or will be an opportunity.
While learning more about Mellon over time, I want to watch it in action, too. Yesterday the company announced the sale of 26 mortgage branches in the West and Southwest. As posted on the Drip Companies message board on the Web, it didn't mean anything significant to us, but I of course want to get to know the ins and outs of the business over time, as has been done with Intel, Campbell Soup and, to a lesser extent still, Johnson & Johnson.
We'll send the money to enroll in Mellon next week. It will cost us about $86, fees and all, including a price cushion. Tomorrow we'll address the future here -- what we're doing next in the Drip Port.
As always, being a Fool, buy only what you're comfortable with based on your own knowledge and decisions. Off to the Fool Port...