Friday, August 22, 2014

How To Get Someone Started

I'm sure we all know someone that could benefit from embracing the dividend growth strategy whether that's a family member, close friend, coworker or anyone else.  With the first cousin that was born after me graduating high school a few months ago and starting college in just a few weeks I figure he's prime to take advantage of the power of compounding.  Even if he starts now at 18 that'd be about 10 extra years of compounding and dividend growth to get him started down the right path to financial independence if he so chooses.

Obviously there's a lot behind investing in individual companies.  There's a lot more risk than investing through index funds/ETFs and in order to mitigate that risk and keep from selling just because of share price movements he would need to commit to research and learning how to invest properly.  I'd point him in the right direction with a few books and of course a lot of the wonderful dividend growth investing blogs for starters.  And any help mentoring or being a sounding board or anything else.  If you're going to get someone started then I think you have to be available to help guide them along until they are ready to go on their own.

With a new child on the way in our own household, one cousin in college, two in high school, and 4 in elementary school or younger I think there's a great opportunity to really make a difference in the lives of my family and their financial future.  What I've thought of doing is purchasing either one share or $100 worth of stock in a company for each of them.  At $100 positions I'd be out $800 but it would set them up well for their future and I think it'd be more than worth it to help give them a real life example of dividend growth investing at work.

When it comes to selecting the company there's lot of options.  There's the tried and true such as Johnson & Johnson (JNJ) (Full Analysis Here), Coca-Cola (KO) (Full Analysis Here), PepsiCo (PEP) (Full Analysis Here) or Realty Income (O).  These options might not provide double digit dividend growth for years to come but what they lack in organic dividend growth they make up for with higher current yields.  Reinvesting a higher yield would give higher compounding and more immediate gratification of the positives of delayed gratification.  The other companies that I thought of would rely much more on organic dividend growth due to the lower starting yields but I expect double digit dividend growth for years to come out of most of them.  Think companies like Starbucks (SBUX), Visa (V) or Disney (DIS).

The common theme between all of these companies is that they have ubiquitous brands, strong moats and proven business models.  My plan would be to discuss a few companies with the older kids that could have more interest and ability to grasp the information and then we'd settle on a company to buy.  So my question to you is:

What one company would you recommend for a high school/college age person to get them interested and started on the path towards dividend growth investing?



Have you ever purchased a company to get someone else started investing?  Were you the beneficiary of such a gift?

18 comments:

  1. I said Coke and Disney. Both due to visibility and the ability to explain what they do. I drank a lot of Coke in high school (still do) and I think Disney is perfect for a younger kid. My dad did get me on the dividend investing path. Unfortunately, not til I was just out of college and had my first job. I made decent money over 7 summers through high school and college. I'm kicking myself now thinking that even putting $1000 each year for those 7 years into Coke, Pepsi, etc. would have tripled the money already and gotten me a great yield on cost. Ah well.

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    1. Warrior,

      KO and DIS are two of my favorite picks from the list. Although maybe NKE as well because several of my cousins are very active in sports/athletics. DIS is probably on board for the 3 youngest ones because that company is a beast. I should have built my own position up in DIS earlier. At least you got started before it was really late. I didn't start until 3-4 years after college myself. I think about the wasted capital from time to time but I can't change it so I don't dwell on it.

      Thanks for stopping by!

      Delete
  2. I would let them choose by themselves. Those are all high quality companies you can't go wrong with. Maybe it would spark them more interest as they could follow how their investment decisions are working out :)

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    1. Leveraged,

      If I do go through with this then my plan is to probably ask them about investing and companies they like and then try and steer them towards these companies. For the ones in elementary school I'm thinking of just buying some DIS for each of them. There's a lot of tax issues to get sorted out before I go through with this though. It might be easiest to just give the capital to their parents and have them invest it.

      Thanks for stopping by!

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  3. I mentioned O in the survey. Nothing better for the motivation to see money being paid every single month ;).

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    1. Fab,

      That was my thinking with O. Monthly reinforcement of how DGI works. My only concern is that O's business model wouldn't be interesting enough. Although boring is usually beautiful when it comes to investing.

      Thanks for stopping by!

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  4. I like JNJ as the ultimate dividend stock with KO as a runner up. For the older kids I like AAPL as they can relate to the product. I think its a great idea to get them interested in stocks. Wish I had someone do that for me as a kid! Also if they have a few stocks I would recommend setting up a google finance or yahoo portfolio for them to track their stocks for fun or even create a fantasy portfolio.

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    1. A-G,

      I think JNJ is a great long term holding but I'm not sure how interesting the product lineup is for high school/college age kids to look at. So I'd lean more towards KO or AAPL although I'd probably talk with them about investing and try to steer them in a direction. I wish someone had done the same for me because I know I wasted thousands of dollars that could be great passive income sources for me now.

      Thanks for stopping by!

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  5. I commend your willingness and interest in helping your family members. Oh how I wish I would have had someone guide me to investing as a kid in lieu of dumping money on baseball cards that are now literally worthless. I too would suggest O for the monthly transactions, and perhaps KO because they would constantly be reminded of their position as a stockholder every time they saw someone drinking a Coke product.

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    1. Anon,

      I wish someone had done the same with me. I was just thinking about all of the baseball cards I have and need to figure out what to do with. Ideally I'd sell them on eBay but I just don't have the time for it and I'd hate to pass that burden on to my wife. I think best case scenario I could get maybe $500 out of them but since they're just sitting in my closet right now that's looking better. Especially since there's not a real emotional connection to it.

      I think O is a great option but I don't think it would be an interesting enough company for them to follow. Boring is beautiful but not for an teenager who's attention is being pulled in a million different ways. I think KO, SBUX or NKE would probably be the best for the older ones and DIS for the younger ones.

      Thanks for stopping by!

      Delete
  6. My number one choice would be AAPL. It is the KO wealth builder of the Millennials. The personal connection is huge: Every teen likely owns an iOS device (or two) and they can brag to their peers that they own part of the company. Your students can tell their friends, "Ya, I'm glad you go get that new iPhone 6; I love my dividends. Yet I'm not gonna upgrade; I plan to buy more stock instead."

    IMO, the exercise to get teens interested in investing, business, or the market has to be about connecting the company with their interests. Every day they will see an Apple product; KO, MCD, SBUX have the same impact; JNJ is close; O and CVX not at all.

    The real question I've struggled with when doing the same "teen intro" is the balance between the value presented in the market today vs. the ability of the teen to understand the company vs. the likelihood that the investment won't swing wildly in price and extinguish excitement. e.g., with my daughters I've used ROST and (as of today) it played out well -- they like to shop there and see the growth.

    More choices that play the long term compounding card including HCP, KMI, MCD. To balance the price swings, I've also used VIG as a starter with some teens as it has the advantage of not being so volatile. If you just want to engage them in long term thinking, obviously BRKB is a historically an excellent investment but it does not help you directly tell the dividend story. However, I think it would be interesting to teach that BRKB is effectively automatically reinvesting the dividends; a different way to allocate the capital.

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    1. Dave,

      I can't believe that I forgot to throw AAPL on the list. Almost everyone has at least an iPod so that would be a great fit. They know the product, at least some of it, and use it and so it's going to keep them interested.

      I think the company connection is the big key to it and why I'd let the older ones decide which company. That will make all the difference when it comes to keeping them interested.

      I'm not too concerned with the valuation balance. Obviously I would prefer to get the shares for less than fair value but none of the companies are so overvalued that they can't grow into the valuation. ROST is another great idea since they can go into the stores.

      Thanks for the ideas!

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  7. I really like DIS, and I think most young people can relate to it. Great advice.

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    1. KeithX,

      I think DIS is perfect for the younger ones because they can sit back and let it compound for a decade or so and then we can start discussing investing.

      Thanks for stopping by!

      Delete
  8. PIP,

    This is a great post! I've been thinking about starting my nephews and nieces for a long time, but never can seem to do it. Disney is good only thing is that does not compound very well at once a year. I love the company though and have some stock from working there for awhile for like 4 times cheaper then it is today. Over time 12 months of dividends such as what O does will grow on you with the frequency.

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    1. Swan,

      I need to check with my aunt to see what would need to be done to make everything "kosher" from a tax perspective.

      The annual payment from DIS is my only gripe with them, well other than shares being expensive right now. My concern with O, despite the fantastic compounding of a high yield on a monthly basis, is that the business just isn't exciting enough.

      I'm going to try and see about meeting up with some of them whenever my work schedule clears up and I'll report back on what I find.

      Thanks for stopping by!

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  9. KO & DIS for me, I would love to be able to buy them for myself, but being in UK makes the real benefits (DRIP and fractional shares) impossible to achieve. If anyone does know how I could do this from over here, please come to my blog and email me.

    Best Wishes
    FI UK

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    1. FI UK,

      Sorry I can't help you about the brokerage situation. I think there's way to open up brokerage accounts in other countries but I think it's much more expensive to make the purchases. Have you checked with your current brokerage on options?

      Thanks for stopping by!

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