Tuesday, September 02, 2008

What Morningstar.com Says About My Dividend Reinvestment Plans (DRIPS) Prefaced By Overview On How to Invest in DRIPS

Excluding startup costs, I have built a $14k+ Dividend Reinvestment Plan (DRIP) portfolio that has little to no ongoing investment costs.

I used http://www.directinvesting.com/ to purchase most of my DRIPS and act as the transfer agent to set up the DRIPS. Using Directinvesting is fairly easy. You can either sign up for a membership and save on DRIP transaction fees, or pay higher transaction fees per DRIP purchase without a membership. I'd recommend considering buying into one of the site's cheaper memberships if you plan on purchasing more than 4-5 DRIPS. You would ultimately recoup your membership cost through subsequent DRIP purchase discounts.

I generally use Directinvesting if http://www.computershare.com/ doesn't already offer the DRIP. Computershare is my favorite site because it offers a number of DRIP plans at little to no initial start up cost (low purchase fees), but is significantly limited in its offerings.

What Morningstar Says About My DRIP Portfolio:

Morningstar lists 9 of my DRIPS as 5 star companies (its highest rating). Morningstar gives its highest ratings to those stocks with the best combination of economic risk, business risk and fair value estimate relative to peers.

The 9 stocks are:

(AA) Alcoa: 9.9% below Morningstar "Consider Buying" Price
(BAC) Bank of America: 7% below " " "
(DOW) Dow Chemical: 8.4% below " " "
(HD) Home Depot: 21.4% below " " "
(LOW) Lowes: 20.7 % below " " "
(MHP) McGraw Hill: 1.6% above Morningstar "Consider Buying" Price
(MMM) 3M: 13.8% below Morningstar "Consider Buying" Price
(XOM) Exxon Mobil: 14.2% below " " "

I recently started a $100 / month auto invest in 3M (MMM) based purely on gut feeling. I'm now glad to see that Morningstar confirms what I previously thought.

I like Home Depot (HD) and Lowes (LOW), but think that any purchases made through my DRIP accounts would be to slow and result in purchasing these stocks at a bit of a premium compared to what I can buy them at tomorrow in my reg. brokerage account. These two housing sector retailers are rocketing up right now due to Hurricane Gustav and the projected new business they'll receive from forecasted hurricanes & tropical activity expected from Hanna, Ike, Josephine, etc.

I'm toying with the idea of investing in Dow Chemical (DOW). I like the idea of investing in DOW since their costs of goods should be going down in tandem with falling oil costs. I also think that their recent deal with a middle eastern company sets them up well for future growth.

I'll keep my eyes and ears open for news on the other DRIPS listed above and post updates here.


Anonymous said...

how are your portfolio dividents now, with crisis and all?

Finance Junkie said...

Dividends fine. Stock values are oscillating greatly though. Basically, I my DRIP portfolio accounts for about $12k of my net worth.