Today I wanted to talk about DRIP investing using the Walt Disney investment plan as a case study since I have a few years of experience with the program. I offer this for those investors who want to feel a more personal connection to their investments, or want to build large positions in certain companies over time. So if you are in the mood, put on some Disney music, and let’s take a look at what the mouse offers investors.
The great points about the Disney DRIP is that it is very easy to set up. They lay out the instructions on their website, and all it requires is a few minutes of paperwork. Though you may need to go to the bank to get a voided check so that they can link your account for automatic monthly withdrawals. There are two ways to set up the plan. The first is to make a one-time investment of $100 and give a guarantee that you will maintain the account for a few months. The second is to make automatic deposits of $50 over the course of a few months. These methods are to ensure that the Walt Disney Company is getting investors who are interested in becoming long term owners of the company.
The money that you put in will be used to develop the movies, theme parks, cruises, ESPN and a host of other things. For me personally, it’s fun to think that when I invested some of my money it went in to help develop movies like Frozen and Star Wars VII. It also gives me happiness that these developments will bring a ton of enjoyment to kids and families everywhere. The further upside to investing in Disney is that you are investing in one of the greatest companies the world has ever seen. The financial rewards to investing in and holding Disney stock over the course of decades would have showered riches on you and your family. While Disney is currently a dog of the Dow, for somebody who holds the stock for 25 years or longer it is hard to imagine you not being much richer then than you are now.*
Further strengths of the plan as a customer is that I had to change my bank due to some personal circumstances that required a change. It was easy to log into my account and change my banking information, and I didn’t even have to leave the house. I enjoy that ease of use, and Disney’s DRIP gets points from me for that. However, there are some “weaknesses” to the Disney DRIP, and the reason I air quote that isn’t that there are circumstances that mandate that you don’t invest, it’s just that other companies have certain advantages over Disney.
Investing in the Disney drip account does have some inherent weakness, one of these being the fees that are charged. Disney isn’t necessarily different than many other companies in their monthly charges. They charge $1 per automatic transaction, and a 2 cent fee per share bought. The plan also has a set up fee of $20. All of which are generally better than what is offered by brokerage houses, but it is inherently inferior to Exxon Mobil’s plan on Computershare which charges you no fees whatsoever to set up an account or buy shares. As an investor, Disney is one of the best companies on earth to invest in. However, there are companies that have an inherently better business model such as Hershey. If you offered Disney and Hershey to me at 15X earnings, you are dealing in levels of perfection, but Hershey would be my choice since the company has better returns on capital and assets that make it more likely to outperform. (I know the more experienced investors will scream at me that I shouldn’t compare businesses across industries like that using those metrics. They are right, but I will stand by that Hershey has inherent business advantages that make it more likely to outperform Disney in the long run with certain variables held equal.
Overall I would highly recommend Disney’s DRIP as the strengths of the plan vastly outweigh the disadvantages. Plus the “weaknesses” of the Walt Disney Investment plan are more relative than anything else. As a result, while they should be factored in, they are an extremely small thing compared to the huge advantages of investing with Disney.
Update: I realized that I left out the most interesting part of investing in the Walt Disney Company; the amount of money you would have made if you had invested. I took a few hours to write my case study here.
*I disavow any and all responsibility for any decisions that you might make regarding the Walt Disney DRIP or investing in general. Something may happen in the future that makes the company go bankrupt. That is the risk of investing in individual companies.