My Favorite Things....
07/22/2005 12:00 am EST
Chuck Carlson is the leading authority on dividend reinvestment plans, commonly known as DRIPs. In an exceptional report entitled "These are a Few of My Favorite Things ..." he offers his top picks among available DRIPs to meet a variety of investor needs.
"My favorite DRIP for a new investor . . .
"ExxonMobil (XOM NYSE) is the quintessential 'starter DRIP' for investors. First, the stock is easy to buy. You can make initial investments directly with just $250. Subsequent investments are a minimum $50. And the plan is extremely user friendly. There are no fees on the buy side. Finally, and most importantly, ExxonMobil represents a classic 'easy hold' stock. The stock generates the type of steady returns that make it a fairly stress-free stock for a new investor. You want a new investor to become comfortable with the investment process, and Exxon is the perfect stock for that. Volatile oil prices in the near term could hamper the stock a bit. Still, I own the stock and feel quite confident that these shares will produce outstanding returns for investors over the next decade and beyond.
"My favorite DRIP for income . . .
"Bank of America (BAC NYSE) offers an excellent opportunity for income investors who also desire some growth. The stock currently yields 4%, roughly twice the yield of the S&P 500. Furthermore, dividend growth has been impressive — the dividend has increased 50% since the third quarter of 2002. I also like the stock’s capital gains potential. And the DRIP is structured to give income investors their cake and eat it, too. The plan has 'partial reinvestment', which allows investors to designate a portion of their dividends for reinvestment while taking a portion in cash. Thus, investors who want to build a position in Bank of America yet need some of their dividends to supplement their cash flow can achieve both goals through the DRIP.
"My favorite DRIP for tech investors . . .
"This is a tough one. I really like Intel (INTC NASDAQ). If I were buying a technology stock today, this would be my pick. In addition to regular dividend growth, I would not be surprised if Intel implements special dividends over the next few years. Intel traded in the mid-$30s every year since 2001. The firm has shown decent relative strength so far this year, and these shares should easily outperform the overall market over the next 12 months. I also like Microsoft (MSFT NASDAQ). To be sure, Microsoft has not exactly burned up the track over the last several years. Growth investors aren’t excited about the stock, and value investors still are not convinced it is cheap enough to buy. My take is that it is a good value at current prices. Further, any firm that throws off as much cash flow as Microsoft has the ability to do a lot of great things — boost its dividend, pay special dividends, and buy back huge amounts of stock.
"My favorite DRIP for kids . . .
" What makes a great DRIP for kids? The plan should be fee friendly. After all, kids don’t have much money to invest, so all of it should go toward buying stock, not fees. It should have low minimums. Again, you want to make it easy for the child to kick in a few bucks. It should be attached to a company that is of interest to the child. I think the investment process means more to a youngster if the child invests in a company in which he or she has an interest. What company fits the bill? Wm. Wrigley (WWY NYSE) is one good choice. The minimum investment once in the plan is just $50 and the DRIP has no fees on the buy side. Best of all, the stock has generally produced outstanding returns for investors. Wrigley shareholders get an extra 'dividend' in the form of 20 free packs of gum each year, sent around the holiday season.
"My favorite DRIP for aggressive investors . . .
"I’ll throw two names at you — Motorola (MOT NYSE) and Lucent Technologies ( LU NYSE). I own both of these stocks and find them very intriguing special situations. Yes, I’m well aware of the past problems at the companies. However, Motorola has put together back-to-back quarters of better-than-expected results. While the company has had a habit of shooting itself in the foot in recent years, it seems the turnaround is finally gaining traction. For investors who want telecom and technology exposure, the stock has plenty of appeal. For even more aggressive investors, Lucent is worth considering. Its financial position is still not what you would consider rock solid. However, it does appear that the worst is behind the company. I would feel comfortable nibbling at these prices and being more aggressive on price dips below $2.50.
"My favorite DRIP for international investing . . .
"I remain a big fan of Smith & Nephew (SNN NYSE). This United Kingdom-based company is a major producer of orthopedic devices. Smith & Nephew was among several orthopedic firms to receive subpoenas from the Justice Department requesting documents on their agreements with orthopedic surgeons. It appears the government is investigating whether "consulting" arrangements orthopedic firms have with physicians are truly legitimate or merely a form of payoff to garner greater sales from physicians. The investigation may limit the performance of these shares in the near term. But there is no denying the strong long-term growth potential for the company. I would feel comfortable buying the stock at current prices and would step up purchases on price breaks into the mid-to-low $40s."