Fellow DRIPers,

Bryan here. Last week, Todd (TMFPhila) and I laid the foundation for the new DRIP Portfolio we'll be personally funding and managing for all to see. Todd even revealed the six companies that he is busy analyzing for inclusion in the portfolio. The purpose of this article is to set the stage for the next phase of our adventure: research and analysis. But first, I need to make a confession.

The walk of shame
I am a DRIP newbie. While I don't mind saying this, I don't like what it implies: In all of my previous investing, I have let fees and commissions eat into my returns. Big time. Just being aware of fees is not enough -- aiming for zero cost is the way to go.

I'm looking forward to learning the ins and outs of DRIP investing from Todd and those Fools who follow along and comment along the way. The beauty of the DRIP is all sorts of investors have access to it. If you've never dabbled in a DRIP, keep me company and we can learn together. The thought of combining thorough and insightful research, regular investing in solid companies, and rock-bottom fees has got my motor racing.

Six more candidates for the DRIP Portfolio
As promised, I've narrowed the universe of companies offering DRIP investing using quantitative screens, Motley Fool CAPS, and any insight I could scrape up from past analysis I've done. Below are the six companies that passed my initial tests. While they may not all be household names, they are similar to Todd's list last week: These companies have strong competitive advantages and healthy balance sheets and generate free cash flow to fund our dividend payments.



Dividend Yield

Interest Coverage (EBIT / Interest Expense)

Price-to-Free Cash Flow

Badger Meter (NYSE: BMI)










Lubrizol (NYSE: LZ)





McCormick (NYSE: MKC)

Consumer Staples




McGraw Hill (NYSE: MHP)

Consumer Discretionary




Total System Services (NYSE: TSS)





Source: Capital IQ, a division of Standard & Poor's.

Here's Todd to explain how we will take the DRIP candidate list from 12 down to the final five.

It's like a Battle Royale -- with a fan vote!
In true Foolish form, Bryan and I will square off on each of our portfolio candidates here on Fool.com. Rest assured, it'll be full of literary jabs, valuation suplexes, and financial flying elbows. Don't worry -- you can participate, too, by making your voice heard in the comments box under each article. We want to know what you have to say about our ideas. While we will ultimately fall back on our analysis, we want to incorporate the feedback from our fellow Foolish DRIPers.

When the dust finally settles, we'll have our final five stocks (most likely my stocks). That doesn't necessarily mean we'll rush into all of our positions at once, though -- we only want to buy at the right price.

If one of our Final Five is a screaming buy, we'll announce our intent to buy. And keeping true to the Fool's disclosure policy, we'll wait 10 days before actually putting our money to work. We'll also show you how you can make your own investment via the company's DRIP program.

It'll really be that simple. As Bryan noted in last week's column, we'll keep up with our selected companies' earnings reports and news events and provide other investing lessons in coming months.

Here's Bryan for a final word.

Sector slam
One thing I'll add to Todd's explanation is that we will do our best to create as diversified a portfolio as we can, given our five-stock restriction. We plan on pitting our stocks against one another via sector, the Battle Royale Todd mentioned above.

But it's not just sector that matters. We'll consider our firms' international exposure, the nature of their customers, the cyclicality of their business and how their stocks zig and zag with one another. In the end, after our candidates have been leg-dropped and bounced off the turnbuckles, we should have a reasonably diversified portfolio of healthy businesses that we're interested in for the long term. When the prices are right, we'll apply the Sharp Shooter and corral our shares.

See you next week!

Neither Todd nor Bryan owns shares of any company mentioned. It's probably a safe bet that Jake the Snake Roberts and The Ultimate Warrior would prefer Bryan's portfolio candidates to Todd's. McCormick is a Motley Fool Income Investor recommendation. The aforementioned Foolish disclosure policy is the undisputed heavyweight champion of disclosure policies.