Five years ago this week, we launched this real-money portfolio. Five years, already. About 1,800 days.
Our inception date currently puts us at a unique place in history. In our five years, we've seen exactly 2 1/2 years of a booming stock market and exactly 2 1/2 years of plummeting prices. Right in the middle of our five years came the market's all-time peak.
Here's how the S&P 500 has performed annually since 1997 (with Drip's minimal exposure to '97 separated out, too).
S&P 500
1997 33% 7/97-1/98 3.6% 1998 28% 1999 20% 2000 -10% 2001 -12% 2002 -21% to date
We invested savings almost every month during this crazy ride up and back down, averaging into our choosen stocks. And we've fared all right -- pretty well, in fact. But first, today, take a look at what we've all endured. Here's a table showing all-time intraday market highs compared to recent lows on July 24.
Peak Date Peak 7/24 Low Change S&P 500 03/24/00 1,552.87 775.68 -50.05% Nasdaq 03/10/00 5,132.52 1192.42 -76.77% Dow 01/14/00 11,908.50 7489.53 -37.11%
So, we saw the S&P 500 lose 50% from its 2000 high to its low last week; Nasdaq lost an almost unprecedented 76%. Incredible. Well, friends, are you still investing? You didn't get wiped out by margin? You're still in this long-term game? Excellent. You've probably survived the worst stock market decline in your life.
For fun, the following table shows how smartly the stock market has rebounded from intraday lows hit just last week, on July 24.
7/24 Low 07/31/02 Change S&P 500 775.68 911.62 17.53% Nasdaq 1192.42 1328.27 11.39% Dow 7489.53 8736.59 16.65%
Those are some neck-snapping rebounds. The end of bear markets are often marked by extreme volatility and large intraday swings. Let's hope that last Wednesday was it. From bottom to top intraday, the indexes swung nearly 10% that day.
In the Drip Port, the long and short of our last five years is that we averaged into rising stocks the first half and falling stocks the second half. In sum, the S&P 500 index is down 2.66% since our 1997 launch, but lost 50% during the second half of our Portfolio's lifetime. The Nasdaq has lost 15% since July '97 but 76% from its high. The Drip Port is down 9% cumulatively since '97 and an estimated 26% from our "internal rate of return" high. The damage could have been much worse if we hadn't worked to make our monthly purchases at good prices.
We always track free cash flow (FCF) and enterprise value (EV) (which makes you track cash and debt, too) at our companies, alongside, of course, rates of revenue, earnings growth, and profitability margins. We also keep an eye on dividend yields as we make purchase decisions, because over time, dividend can become a significant part of your return -- even with today's low yields. Most our companies increase their dividend annually. So, on our earliest purchases of Johnson & Johnson (NYSE: JNJ), we're now yielding close to 3% in annual dividends.
Looking ahead, we currently have savings to invest, and our stocks have been volatile. (I wish we could have jumped on J&J in the low $40s and Pepsi (NYSE: PEP) at $36.) Let's look at the current valuations of our investments based on the most recent 12 months. Here are a lot of numbers (in millions).
Johnson & Johnson (NYSE: JNJ) FCF (conservative) 7,331 FCF (OCF - Cap Ex) 7,437
Diluted shares out 3,115 Share price $53.00 Cash + Equiv. 3,437 LT Debt 2,225 Enterprise Value (EV) $163,883 EV/FCF (conservative) 22.35 EV/FCF (OCF-Cap Ex) 22.04 Dividend Yield 1.55% 2002 EPS est. 2.25 P/E on 2002 EPS est. 23.56
Est. growth rate 14.5% PepsiCo (NYSE: PEP)
FCF (conservative) 2,568 FCF (OCF - Cap Ex) 3,407 Diluted shares out 1,777 Share price $42.94 Cash + Equiv. 1,557 LT Debt 2,257 EV $77,004 EV/FCF (conservative) 29.99 EV/FCF (OCF-Cap Ex) 22.60 Dividend Yield 1.40% 2002 EPS est. 1.95 P/E on 2002 EPS est. 22.02
Est. growth rate 12% Paychex (Nasdaq: PAYX) FCF (conservative) 237 FCF (OCF - Cap Ex) 249 Diluted shares out 375 Share price $26.31 Cash + Equiv.+Invest. 724 LT Debt 5 EV $9,147 EV/FCF (conservative) 38.60 EV/FCF (OCF-Cap Ex) 36.74 Dividend Yield 1.67% 05/2003 EPS Est. 0.79 P/E on 2003 EPS est. 33.30
Est. growth rate 15% Intel (Nasdaq: INTC) FCF (conservative) 987 FCF (OCF - Cap Ex) 1,613 Diluted shares out 6,861 Share price $18.79 Cash + Equiv. 6,524 LT Debt 1,064 EV $123,458 EV/FCF (Conservative) 125.08 EV/FCF (OCF-Cap Ex) 76.54 Dividend Yield 0.43% 2002 EPS est. 0.56 P/E on 2002 EPS est. 33.55
Est. growth rate NA
Mellon Financial (NYSE: MEL)
Share price $26.58
Book value $7.60
Price/BV 3.5
Dividend Yield 1.81%
2002 EPS est. $1.71
P/E on 2002 EPS est. 15.4
Est. growth rate 12%
You can put these numbers in a spreadsheet and play with them yourself. Just update the share price, and you get an updated enterprise value and enterprise value-to-free cash flow ratio, dividend yield, P/E on 2002 estimates, and so forth. Of course, you'll need to update free cash flow results, shares outstanding, and cash and long-term debt when new quarterly SEC statements are released, and keep earnings estimates and annual dividends current. It's quarterly maintenance.
Slowly looking at our numbers above, you see that J&J is at 22 times trailing free cash flow. Pepsi is in the 20s, too; Paychex is in the high 30s; and Intel is wacky because free cash flow hit a wall. Mellon Financial, where we mainly consider book value, is at 3.5 times book value, its lowest in years. It also offers the best yield and lowest forward P/E estimate. Tomorrow, we'll send a check to buy more Mellon Financial.
In closing, thank you, readers, for five wonderful years. I really hope that you've benefited, and will continue to benefit, from the Drip Port's steady investing example. Take care.
[Thinking of opening an IRA? Want to invest steadily in stocks, especially those without Drips, at a low cost? Consider the Drip Port's sponsor, ShareBuilder.]
"To fill the hour -- that is happiness," said Emerson. Jeff Fischer owns the stocks in Drip Port. The Fool has a disclosure policy.
Drip Port's Simple Returns as of 7/31/02 Market Close:
Since 7/28/97 6/28/02 Drip Port -9.85% -3.77% S&P 500 -2.66% -7.90% Nasdaq -15.05% -9.22%
Above are the Drip Port's straight or simple returns (including fees and our Campbell Soup loss) since launching 7/28/97 and for the current month. (These returns do not account for the fact that we dollar cost average, which, when accounted for, correctly increases our return by typically a few percentage points.) Additionally, we've received $56.03 (worth about 1% of our current value) in reinvested dividends since September 2001 that have not been recorded in our numbers due to functionality issues with our port tracking provider. Thank you for your interest and patience.
