Today’s lesson is from the Book of Dividends, a lesser known but vitally important piece of scripture written by the ancient Israelis and kept in a secret secure location for centuries.
My paternal grandfather died in 1980. As he was predeceased by my father, I was left a modest amount of money which I received about a year later. Some of that money was already in the form of bonds which eventually went to the down payment on my first house. The lesser parts went into the stock market. At the time, there was a tax regulation which exempted dividends from electric utilities for tax purposes. So, I bought 100 shares of Philadelphia Electric at $14.38 per share. I then immediately placed those shares into the company’s dividend reinvestment plan or DRIP.
DIVIDEND REINVESTING ADDS UP
The reinvestment of those dividends quickly added up. By 1989 those original 100 shares become nearly 250 shares just through dividend reinvestment. Over time I added smaller amounts of money (a total of about $2,000) to that company’s DRIP. Philadelphia Electric become PECO Energy and then in 2000 merged with Unum to become Exelon, the nation’s largest nuclear power producer. In 2004 Exelon spit its shares 2 for 1. By 2006 I had about 1,400 shares (after gifting 50 shares to my youngest brother for his college graduation). I sold a little bit after then (I would note most near Exelon’s all-time high) to buy some investment real estate and renovate our kitchen but still continued to reinvest dividends. The stock price rose and fell over time but I still have over 1,000 shares.
I also diversified into the DRIP plans of other companies along the way such as: Northeast Utilities (NU) in 1982 (just after that first Philly Electric purchase); Southern Company (SO); Duke Energy (DUK) and Progress Energy which merged a few years ago; and Pepco Holdings (POM), building up a nice portfolio of utility DRIPs along the way. I would note that there were others, some of which were taken over, some of which I sold and some others I still hold. A few years ago, I diversified once again, this time into non-utility stocks such as Pepsi (PEP); McDonald’s (MCD) and Caterpillar (CAT).
EXELON TO PURCHASE PEPCO FOR $27.25 IN CASH
This morning we wake up to news that Exelon is purchasing Pepco Holdings for $27.25 per share in cash. I will be on the hunt for more DRIPs to put that cash into.
Computershare , Bank of NY Mellon (BK) and Wells Fargo (WFC) are three of the largest DRIP custodians / agents, although there are others as well. You can search the site of those service providers or the shareholder services / investor relations site of most companies for more information as to how to get started.
And to this we say …. Amen
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long EXC, POM, NU, SO, DUK, PEP, MCD, CAT — although positions can change at any time.
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