Thirteen years ago, long before the iPhone or Twitter, in a kingdom far, far away, our Foolish colleague Jeff Fischer and former Fool Randy Befumo introduced a DRIP Portfolio on this site.

Their reasons for starting the portfolio were simple:

  1. Most Americans have more credit card debt than they do savings.
  2. Most Americans want to change that situation and start investing.

Sound familiar?

So over the next five and a half years, the Fools slowly added modest sums to a group of five stocks available via dividend reinvestment plans (DRIPs).

When the original Fool DRIP Portfolio closed in 2003, it was up about 1% even though the S&P 500 lost 12% over the same period.

Be the tortoise, not the hare
No, the portfolio didn't generate massive returns over this period, but it wasn't crushed by the dot-com crash, either. Following our own recent spate of volatile markets, I (Todd here) believe most investors would prefer hitting consistent singles rather than knock a few home runs while striking out most of the time.

In fact, had the Fools simply held onto the portfolio through today without any additional management or reinvestment, they'd still be doing quite well:

Company

Return Since Feb. 20, 2003

Mellon Financial*

104.5%

Intel

44.4%

PepsiCo

89.7%

Paychex

26.7%

Johnson & Johnson

39.7%

Average

61%

S&P 500**

49%

*Mellon Financial was acquired by Bank of New York in July 2007; return based on Mellon's last price of $44.44 per share.
**As measured by SPDR Trust ETF.

To us, these results are a testament to the virtues of making steady and deliberate investments in high-quality companies and holding them patiently.

And that's precisely what Bryan and I are setting out to do again, by launching our own DRIP Portfolio backed by our own personal funds for all the world to see, right here on Fool.com.

Here's Bryan to tell you more about it.

Going rogue
Your fearless leaders -- Todd is a homeowner, and I'm a newlywed whose wife has a worse shoe habit than Carrie in Sex in the City -- are far from Scrooge McDuck-wealthy, so we'll build this portfolio slowly. In the coming weeks, our plan is to invest $500 in five wonderful, DRIP-offering companies, for an initial investment of $2,500. As the portfolio ages, we plan on adding to our five holdings only when prudent and when we have some cash to spare.

My Foolish colleague and I are putting our own hard-earned dollars at stake here because we believe in the DRIP philosophy:

  1. Invest in medium to large enduring businesses that have the discipline to consistently return cash to shareholders.
  2. Continuously develop knowledge about your investment over time.
  3. Invest regularly with a long-term mind-set.

Along the way, we'll be sharing our research, commenting on major news and earnings events, posting the portfolio's performance, and engaging in a friendly competition that will likely show that I am much smarter than Todd. Our thinking will be long-term, and we hope to learn from you, too, so chime in with your thoughts, questions, and comments right here on Fool.com.

I hope you join us for the ride, be it for education, amusement, or enrichment.

Oh wait -- Todd just has one more thing to add.

Long live the DRIP!
Next week, Bryan will give you a few names he's looking into for the DRIP Portfolio. To get us started, though, I thought I'd reveal a group of stocks I'm researching for inclusion in the DRIP Portfolio.

Each of these names passed my initial "sniff" test for new ideas: They must have strong competitive advantages, a solid balance sheet, consistent free cash flow generation, and a history of increasing dividend payouts.

Company

Industry

Dividend Yield

Interest Coverage (EBIT / Interest Expense)

Price-to-Free Cash Flow

Caterpillar
(NYSE: CAT)

Industrial Goods

2.7%

3.7

11.2

J.M. Smucker
(NYSE: SJM)

Consumer Staples

2.6%

12.9

12.9

Tiffany
(NYSE: TIF)

Consumer Discretionary

2.6%

8.9

11.3

Microsoft
(Nasdaq: MSFT)

Technology

2.1%

NM

11.0

Chevron
(NYSE: CVX)

Energy

4.0%

469.0

21.9

Walgreen
(NYSE: WAG)

Services

1.9%

36.5

11.5

*Data provided by Capital IQ, as of July 14, 2010. NM = not meaningful.

This is a fairly diverse group of stocks, and that's the point. In our portfolio, we'll make sure that our five companies overlap as little as possible so that we can ensure proper diversification.

We'll keep looking into these companies to see which ones would be the best fit for our portfolio. In the meantime, if you have any questions or comments, fire away in the comments box below.

Be sure to check back next week for a new DRIP Portfolio article.

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Fool analysts Todd Wenning and Bryan Hinmon believe a day without sunshine is like night. Todd owns shares of Johnson & Johnson. Microsoft, Intel, and Paychex are Motley Fool Inside Value recommendations. Johnson & Johnson, Paychex, and PepsiCo are Motley Fool Income Investor recommendations. Motley Fool Options has recommended buying calls on Intel and Johnson & Johnson and diagonal call positions on Microsoft and PepsiCo. The Fool owns shares of Intel and has a disclosure policy.