<THE FOOLISH FOUR>

Foolish Four Report
by Robert Sheard

LEXINGTON, KY. (Jan. 13, 1998) -- The first of the Foolish Four quarterly earnings reports was released today. International Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IP)") else Response.Write("(NYSE: IP)") end if %> bettered the consensus estimate for the quarter by a penny, posting 38 cents a share versus a year-ago performance of 33 cents per share.

The company has a slew of special charges this quarter, including an anticipated loss on the sale of its imaging businesses and a gain from a redemption of interests in western timberlands and the release of a related debt guaranty.

Chairman and CEO John T. Dillon bemoaned the 1997 performance but sees better results on the horizon. "Overall market conditions were disappointing for most of 1997," he said. "For 1998, although we expect pricing to improve, particularly in the second half of the year, we have set even more aggressive profit improvement targets. We are on schedule to complete all of our previously announced asset sales before mid-year."

Wall Street shrugged off the earnings report as ho-hum. International Paper shares rose $0.69 for the session, but most of that came late in the day as the entire Dow picked up steam.

Although not a current Foolish Four stock, Alcoa <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AA)") else Response.Write("(NYSE: AA)") end if %> presents the Dow Dividend Approach investor a bit of a dilemma. Last week, Alcoa made a dividend announcement, leaving its base quarterly dividend unchanged at 25 cents per share. But Alcoa is adopting a somewhat novel "bonus" system.

Alcoa is paying a bonus dividend directly tied to the company's financial performance. Any time the company makes more than $3.00 per share in a calendar year, it will pay out 30% of the amount over that level in dividends the following year. As Alcoa made $4.66 per share in 1997, it will pay out an extra $0.50 a share in dividends in 1998.

The Dow Approach investor can view that extra $0.50 per share in two ways. Since Alcoa has announced officially that it will pay the extra $0.50 in 1998, one could treat the combined total of the regular dividend and the special dividend as Alcoa's annual dividend rate, which would push the stock into the top ten yielders.

Alternately, since the extra $0.50 is not a permanent dividend and will stop after one year (contingent on Alcoa's 1998 earnings), one could ignore it in the calculations for Alcoa's regular dividend yield. In that case, Alcoa would still be just outside the top ten yielders.

There's no right or wrong way to approach this problem. When Alcoa announced a similar special dividend (last year or the year before), we did not include it in our model calculations because the regular dividend wasn't increased. But that's not to say you can't treat the extra dividend as part of your own rankings. There's no "official" way to handle such a situation. We choose, however, to include only the recurring dividends in our calculations, so you won't find Alcoa in our top ten at this point.

I hope that clears up any confusion on how we're treating this "bonus" dividend. Fool on!

TODAY'S NUMBERS

Stock Change Last -------------------- UK - 5/16 41.25 IP + 11/16 42.63 MO +1 1/2 47.88 EK -1 11/16 61.31

Day Month Year FOOL-4 +0.35% 0.49% 0.49% DJIA +1.11% -2.23% -2.23% S&P 500 +1.38% -1.89% -1.89% NASDAQ +2.24% -1.85% -1.85% Rec'd # Security In At Now Change 12/31/97 276 Philip Mor 45.25 47.88 5.80% 12/31/97 206 Eastman Ko 60.56 61.31 1.24% 12/31/97 289 Int'l Pape 43.13 42.63 -1.16% 12/31/97 291 Union Carb 42.94 41.25 -3.93% Rec'd # Security In At Value Change 12/31/97 276 Philip Mor 12489.00 13213.50 $724.50 12/31/97 206 Eastman Ko 12475.88 12630.38 $154.50 12/31/97 289 Int'l Pape 12463.13 12318.63 -$144.50 12/31/97 291 Union Carb 12494.81 12003.75 -$491.06 CASH $77.19 TOTAL $50243.44