04/29/2005 12:00 am EST
Chuck Carlson is the industry’s leading expert on DRIPs, or dividend reinvestment plans, that are designed to help investors cost-effectively build long-term holdings, by reinvesting dividends into additional shares. Here, he looks at his favorite DRIPs in the oil sector.
"Talk about your high-octane stocks. Oil stocks have been the place to be over the last 12 months. The group should continue to produce returns that outpace the overall market, albeit at a pace that is more moderate than their performance over the last year. And while the yields on oil stocks have fallen as stock prices have moved higher, yields in most cases are at or above the market yield. The stocks featured below have no enrollment fees or purchase fees to start the DRIPs.
"Of the group, the blue-chip pick is ExxonMobil (XOM NYSE). The stock is now the largest company in the market in terms of capitalization. Exxon historically has not been the fastest-rising oil stock when oil prices rise, nor has it been the fastest-plummeting stock when oil prices fall. Its massive size provides a certain ballast to its operating performance. I own the stock and expect further gains. Minimum initial investment is $250. Subsequent investments may be as little as $50. Exxon has an IRA option, including a Roth IRA option, built into its plan.
"My other favorite oil DRIP is ConocoPhillips(COP NYSE). Given the stock’s triple-digit price tag, a stock split is expected for these shares. Conoco’s initial minimum is $250, and the firm will waive the minimum if an investor agrees to automatic monthly investment with electronic debit of a bank account of at least $25. If you want a foreign play in the oil sector, BP (BP NYSE) has appeal. This United Kingdom-based company offers a high yield of 2.7%. Minimum initial investment is $250. Subsequent minimums are $50. I view Kerr-McGee (KMG NYSE) as a speculative play among the stocks listed here. The issue’s relatively small market cap of just $12 billion (versus ExxonMobil’s market cap of more than $390 billion) makes it a takeover candidate. Minimum initial investment is $750. Subsequent investment minimums are just $10."