When was the last time a stranger took you aside and offered to sell you pictures of his Drip stocks? Nudge, nudge. Wink, wink. Know what I mean? Never? I thought as much. Direct purchase plans have been called many things over the years, none of them sexy.
Maybe it's the misplaced notion that participating companies are all stodgy, older-than-mud cash cow behemoths with dividend money to spare. For starters, there's no one carding these companies for dividend payouts. With direct purchase plans, you can add to your non-yielding stocks with the same mechanics as optional cash payments done through traditional Drips.
Take Boston Beer (NYSE: SAM) for a swig. The company behind the Samuel Adams brew has always been appreciative of both its consumers and its investors. When the company filed to go public in 1995, it let the drinking public grab a piece of the equity. It let 33,333 beer buyers pick up 33 shares of the company at the initial public offering price of $15 a share. It gave out free calendars to shareholders, too! Short of hand-stocking your fridge, the company clearly values its investor relationship.
However, Boston Beer is more interested in investing its profits back into the company. No dividend. No Drip. Where's the love? Well, the company launched a direct purchase plan to let its existing shareholders -- no doubt many with 33 shares to their name -- nickel and dime their way to larger stakes in the company.
This doesn't make Boston Beer a buy, unless a friend is willing to pick up the tab. Even beer goggles can't cloud the financial reality that revenue growth has been stagnant over the past few years. Flat sales growth is about as desirable as flat beer. The company's saving grace is that its ambitious share buybacks over the years have reduced the number of shares outstanding. So, while the top and bottom line last year practically mirrored its showing back in 1997, earnings have improved on a per-share basis.
The hit-or-miss catalyst here is that the company is rolling out a light-beer version of its signature lager. With everything from spiked teas to juiced-up lemonades cutting into Boston Beer's alcoholic beverage market, it had to do something. The thing to watch here is if the success of the light brand comes at the expense of tarnishing the company's reputation as a hearty full-beer specialty brewer.
Love it or hate it, Yahoo! (Nasdaq: YHOO) has a direct purchase plan too. Two years ago, the company topped the billion-dollar mark in annual revenue. Unfortunately, most of the company's take came from online advertising. Between lower clickthrough rates knocking down the price of sponsorship to the fact that many of the portal giant's advertisers were folding dot-coms, Yahoo! has yet to recover.
While operating profits have been elusive, analysts believe that the company has turned the corner. With premium services springing up all over the site -- and fewer competitors around to give the store away -- the transformation of the Internet from a haven of freeness bankrolled by venture capitalists into enterprise's inspiration point is reluctantly under way.
The stock is certainly not cheap under standard valuation methods. Analysts expect the company to earn just $0.10 a share this year and nearly double those profits next year. To grow beyond those meager levels to justify a higher share price the company will need visitors to start spending more at the site, growth in the corporate services space and a rebound in the online ad market. That entails a great deal of heavy lifting so the risks remain. With $1.3 billion in cash, few wonder if Yahoo! will survive. The hit-or-miss catalyst is if it has what it takes to thrive.
Riding a more optimistic wave at the moment, Pier 1 Imports (NYSE: PIR) has seen its stock more than double off last year's lows. The home furnishings retailer has produced solid results as lower interest rates have stirred up demand of the company's wares. Why? Well, between folks moving and others refinancing, both new and old homes are receiving the makeover treatment.
Like Boston Beer, Pier 1 has been a smart buyer of its own stock when the prices dip. Its outstanding share count has dipped during each of the past four years. Meanwhile, new stores and healthy traffic has kept the top line growing.
Despite paying out quarterly dividends, Pier 1 has seen its shares fall in and out of favor before. That makes it an interesting Drip in which you can average down to get more bang for your dividend buck during lean times while profiting from capital appreciation during more festive feasting times. The hit-or-miss catalyst here will be the company's financial performance once interest rates begin to creep back up.
Leisure is a mixed bag, and Marcus (NYSE: MCS) has been left holding it. Between its lodging establishments that are suffering form a slowdown in travel and its movie theater operations that have been going gangbusters as people flock towards celluloid blockbusters, Marcus is tasting both victory and defeat.
It's winning that taste test, though. The company has lapped Wall Street's target levels over the last three quarters. With earnings starting to inch higher and a shakeout in the hotel industry likely, the one real negative with Marcus is the company's huge debtload. While leverage is practically a rite of passage in the lodging and movie house sectors, it's still something to consider.
Marcus happens to be one of the few remaining companies to offer a fee-free Drip. That certainly shouldn't be as much a factor in deciding to invest in the company as, say, the occupancy trend at its Baymont Inns & Suites chain. With Hollywood doling out a record box office year, the company's theater properties should continue to "reel" in the profits. The hit-or-miss catalyst is the performance of the company's lodging portfolio in its seasonally strongest period. Now. Most of Marcus' annual earnings take place in the August quarter. With summer vacation travelers hitting the road in larger numbers than usual, the budget-minded Baymont chain should win over more overnight guests in transit than usual. A good hunch would be that Marcus beats the Street again, but like any hit-or-miss catalyst, this can go either way.
And I'm just scratching the surface here. Will Corning (NYSE: GLW) grow to regret its shift from housewares to fiber optics? Will Target (NYSE: TGT) continue to gain retail market share through its cheap-chic approach, or will shoppers return to pricier fare once the economy rebounds? There is more to Drips and direct purchase plans than utilities, financial stocks, and real estate investment trusts. We own a few here, of course. But dig deeper. Mining is half the fun.
Rick Aristotle Munarriz used to dig a lot as a kid. Now he likes to keep his fingernails clean. He does not own any of the stocks mentioned in this column. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.
