DRIP Advice

[okobrien]

My wife and I just had our first baby and my father in law has decided that is going to give some money for my son every year on his birthday.  FIL want me to pick a different dividend stock every year to invest the money in for my son.

I only pick stocks when I'm in a gambling mood and I have no reason to believe that my pick would be any better than a monkey throwing darts at a stock chart. I set up a custodial account through an online broker but really have no idea where to put this year's money.

Does anybody have ideas for picking A stock that my son will be accessing in 18 or more years? My FIL said he wants me to invest it specific stocks,  not a fund.

[dandarc]

I'm an indexer myself, but if I had to pick individual stocks, I'd read some of Joshua Kennon's work first.

http://www.joshuakennon.com/

He seems to like Disney and Coke and Nestle and Tiffany's and so on - basically big, old, boring companies that aren't too flashy but have proven they know how to make money.

[GGNoob]

Depending on how much money this is and what you are paying for trading fees, you may be better off doing a direct stock purchase plan. My new favorite company is Realty Income Corp (O) and you can set up a custodial account with their direct stock purchase plan. This invests 100% of the money and you can enable DRIP on the account. Only fee is a one time $5 set-up fee.

http://investors.realtyincome.com/ready-to-invest

Once set up, your Wells Fargo Shareowner Online custodial account will allow you to invest in some other stocks as well. For any stocks not available there, you'd have to set up a new custodial account. Just an idea to potentially save money with trading fees or if you wanted to stick with a single company.

Also, since its your kid, I don't see the harm in you investing the money as you see fit (index funds?). Your FIL could always open his own custodial account and invest it himself.

[GrowingTheGreen]

It's pretty difficult to name a sure winner when you're thinking 18 years out. JP Morgan comes to mind, but I have nothing to back it up.

Are you able to talk to your FIL about allowing a fund or is he dead set against it?

[Another Reader]

Your father in law is a dividend investor.  He's focused on buying what he thinks are quality businesses likely to increase their income and your kid's income over time.  Here are a couple of folks that focus on dividend stocks and growing the dividend income over time.

http://www.dividendgrowthinvestor.com/

http://theconservativeincomeinvestor.com/

http://www.joshuakennon.com/

The philosophy is different than that of efficient market and index fund proponents.  The proponents of dividend investing do not agree buying individual stocks is gambling.  It's worth reading the material and then discussing it with your father in law.

[Another Reader]

You have two identical threads.  You may want to consolidate them.

[doggyfizzle]

I'd suggest beginning with ExxonMobil, Johnson and Johnson, or Proctor and Gamble.  All offer excellent (nearly no-cost) DRIP and DSPP plans through Computershare.  All will be around in 18 years.

[Eric]

Why not compromise and purchase a dividend focused fund?

[mrpercentage]

I'd suggest beginning with ExxonMobil, Johnson and Johnson, or Proctor and Gamble.  All offer excellent (nearly no-cost) DRIP and DSPP plans through Computershare.  All will be around in 18 years.

+1
You should also look at WellsFargo's plans. You can get Reality Income there and many others
https://www.shareowneronline.com/UserManagement/DisplayCompany.aspx

At computershare-- Owens & Minor, Smuckers, Dr Pepper is zero fee. I suggest sticking with what you know or believe in. You won't be inclined to intervene and "stop" losses which will really be killing a bunch of future gains. Stocks are more volatile. Kids really won't be taxed on any of this stuff unless there are $10,000 in dividends a year.

[mrpercentage]

I forgot to tell you where to get Disney

its $20 to open an account then $1 for an ongoing monthly investment--- but $35 to cancel. Don't do this unless you are in it for the long haul

https://stockplans.broadridge.com/Plan/

[daverobev]

How about BRK.B? No divi I guess.

GE, JNJ, ULVR, stuff like that is what I'd go for.

[mrpercentage]

How about BRK.B? No divi I guess.

GE, JNJ, ULVR, stuff like that is what I'd go for.

BRK.B has no direct stock purchase plan. It took me forever to find that on their sight. I did look long ago. Mr Buffett thinks you should pick a low cost broker to acquire shares. That makes Robinhood an ideal candidate. If BRK.B did offer a plan with fractional shares I really would consider going all in on that for a while. That is the only exception for me. The rest all pay dividends.

It just so happens the Berk recently acquired some Kinder Morgan according to the quarterly reporting. So did I not long ago. Maybe I am on the right track. Only time will tell. I hope they create a plan but something tells me Warren doesn't like fractional shares.

[YoungInvestor]

I like the idea of using individual stocks. It's much easier for a kid to visualize ownership in, say, Hershey or Disney than it is to see it in index funds (which you would probably get similar results with 10+ companies after some time).

Imagine taking your kid to start wars and telling him he owns part of the studio... Or taking a look at the Halloween candies his company has manufactured.... That would be a great learning experience.

[talltexan]

Utility stocks are often in the "widows and orphans" category as well. Duke Energy (DUK) has a nice dividend. Southern Company is another good one. You may wish to buy the utility of which you are a customer; it will make those high electric bills a little more tolerable to think about how your son owns a piece of the company.

(In the interests of full disclosure, I work for and have a long position in DUK)

[MDM]

Does anybody have ideas for picking A stock that my son will be accessing in 18 or more years? My FIL said he wants me to invest it specific stocks,  not a fund.

Does your wife agree with you that an index fund would likely be better than a specific stock?  If so, she should tell FIL and you folks should invest the money as you see fit.

Of course, if FIL will only give money if it goes to a specific stock then take your best guess....

Whether invested in a fund or an individual stock, if
 - you still remember this in 18+ years, and
 - tax law is still about the same, and
 - your child doesn't need the fund/stock money while still your dependent for taxes, and
 - the first year your child is not your dependent for taxes the child's income is still low, then
...the child may be able to sell at that time and take the entire capital gain tax-free (due to 0% rate on LTCG).

[Generator515]

I forgot to tell you where to get Disney

its $20 to open an account then $1 for an ongoing monthly investment--- but $35 to cancel. Don't do this unless you are in it for the long haul

https://stockplans.broadridge.com/Plan/

Or Loyal3 has Disney for no fees. Only caveat is they don't DRIP automatically so the cash would be added to the account but since no fees and can buy fractional shares it is a simple log in and purchase.

[mizzourah2006]

Depending on how much money this is and what you are paying for trading fees, you may be better off doing a direct stock purchase plan. My new favorite company is Realty Income Corp (O) and you can set up a custodial account with their direct stock purchase plan. This invests 100% of the money and you can enable DRIP on the account. Only fee is a one time $5 set-up fee.

http://investors.realtyincome.com/ready-to-invest

Once set up, your Wells Fargo Shareowner Online custodial account will allow you to invest in some other stocks as well. For any stocks not available there, you'd have to set up a new custodial account. Just an idea to potentially save money with trading fees or if you wanted to stick with a single company.

Also, since its your kid, I don't see the harm in you investing the money as you see fit (index funds?). Your FIL could always open his own custodial account and invest it himself.

O would have been good @ $45-50, I think it's a bit over-priced here. I think a lot of the big banks are under-valued right now. Here are some good ones that I think will be around in 18-20 years. Also, remember REITs are taxed as ordinary income in taxable accounts.

Visa
Wells Fargo
Johnson & Johnson
General Electric
Home Depot
Apple
Disney

I own some Coca-Cola, but 18 years from now, not sure I would be willing to take that bet. Oils are another sector that are crushed and  give nice dividends, but again, what will the energy sector look like in 18-20 years?

I like the idea of using individual stocks. It's much easier for a kid to visualize ownership in, say, Hershey or Disney than it is to see it in index funds (which you would probably get similar results with 10+ companies after some time).

Imagine taking your kid to start wars and telling him he owns part of the studio... Or taking a look at the Halloween candies his company has manufactured.... That would be a great learning experience.

I completely agree. Dividends are also a good way to understand how businesses work. A company makes profits, uses what it needs for capital allocation and the remaining money goes to the owner of the business.

[okobrien]

Thank you all for your ideas, and sorry for my incredibly delayed response.  The little guy who will be the recipient of these stocks has been monopolizing all my free time. 

Eric: I like the fund idea.  I will ask him about it but I do think he wants individual companies.

Another Reader: I will research the sites you linked.  You are right about my FIL.  I don't share the same investment beliefs as him, but what he does has worked well for him for as long as I have been alive.  Who am I to challenge that?  And actually, I am looking forward to this real life experiment in which I will get to compare dividend investing-most likely in individual companies-to index funds.  Also, how do I consolidate threads? 

[MOD NOTE: Merged duplicate threads.]

[okobrien]

Thank you all for your advice. 

Dandarc: I will read up on J. Kennon.  I am also more of an indexer but do know there are many ways to skin a cat.

YoungInvestor: Those are my FIL's thoughts as well and I actually agree with the idea.  Owning individual companies seems so much more tangible than an index fund.  When I am teaching my son about investments I think it will be much easier for a young person to understand ownership of individual companies than ownership of parts of hundreds or thousands of companies.  Because of this I am perfectly ok with picking individual stocks.  In a handful of years I expect my son to participate in the choosing of his birthday stocks.  Researching individual companies will be an incredible learning opportunity for a child.  If I go the index fund rout I may miss out on said opportunity.

[arizonawildcats]

My preference would be a dividend growth ETF.   I’m a fan of Vanguard’s VIG - - it contains an excellent group of quality companies.   It’s not the highest yielding ETF but should provide excellent dividend growth over the years with lower volatility than the overall stock market.     

If I was forced to buy one dividend stock (if ETF is not an option), it would be AAPL.     

[mrpercentage]

O would have been good @ $45-50, I think it's a bit over-priced here. I think a lot of the big banks are under-valued right now.

This depends on the plan. If you are dropping in a lot a once- yes. If you are averaging in a $100 a month or something you will get the lower prices at some point. But yes, it was a better deal 30% ago. If you are using yield than look to add around 4.5%. Stop adding sub 4%. Its just not worth it-- in my book anyway. If someone already purchased, don't worry too much, the dividends will average for you and purchase every dip along the way.

Each big lump some should be something different until better diversification is obtained. Over the years you will have opportunities to add to your favorites. Best of luck

[MustacheAndaHalf]

I’m a fan of Vanguard’s VIG - - it contains an excellent group of quality companies.

Not just you - also $19 billion investment dollars: "VIG" is Vanguard's 7th largest ETF.