Call Us Toll Free: 1-800-388-9993

STOCKing Stuffers for the Kids on Your List 11/20/15

STOCKing Stuffers for the Kids on Your List

 

Set Up a Five-Stock Portfolio (for less than $500) that’s Likely To Turn into Millions!


Let’s be realistic. Does your child really need another electronic toy? Wouldn’t it be better to forgo a few of the more traditional holiday presents in favor of one that will set the child on his or her way to an extraordinarily wealthy future-and encourage him/her to save and invest?


The gift I am describing is a five-stock portfolio of stocks that allow direct investing through their dividend reinvestment plans (DRIPs).


With this gift, your child can start contributing even very small amounts, say $25, which will buy shares or fractions of shares depending on the market price of the stock. Those shares, will compound in his or her account and throw off dividends, which will also compound. Over the long term, the results of compounding are magical.

 

$10,000 invested at birth at 10% compounded
annually turns into over $5 million by age 65

 


Year

Age

Invested

End of Year

1

0

$10,000

$11,000

2

1

$0

$12,100

3

2

$0

$13,310

4

3

$0

$14,641

5

4

$0

$16,105

6

5

$0

$17,716

7

6

$0

$19,487

8

7

$0

$21,436

9

8

$0

$23,579

10

9

$0

$25,937

11

10

$0

$28,531

12

11

$0

$31,384

13

12

$0

$34,523

14

13

$0

$37,975

15

14

$0

$41,772

16

15

$0

$45,950

17

16

$0

$50,545

18

17

$0

$55,599

19

18

$0

$61,159

20

19

$0

$67,275

21

20

$0

$74,003

24

25

$0

$119,183

29

30

$0

$191,945

34

35

$0

$309,129

39

40

$0

$497,855

44

45

$0

$802,801

49

50

$0

$1,291,308

54

55

$0

$2,079,665

59

60

$0

$3,349,321

66

65

$0

$5,291,144

 

As you can see, a $10,000 investment can easily turn into a fortune if it is left to compound at a reasonable rate of return over the long term.For these calculations, we assumed a 10% average annual rate of return over the long term, which is less than the amount actually achieved by the market as a whole since 1926.

 

The portfolio we suggest below is likely to do even better than that. What’s critical, though, is that you don’t allow fees to diminish your returns and that you have the emotional stamina to stay with your predetermined strategy even when share prices are falling.

 

Dividend reinvestment plan (DRIP) investing can help achieve those goals on many levels. DRIPs make it easy to make regular dollar amount investments to build holdings at a variety of price points. They also offer the advantage of making trading not so simple. You can’t just click a link and sell. That’s a tremendous advantage! It’s not easy to hold on when you see market values falling. But those who succeed in holding for the long term will benefit while those who succumb to the emotions of the marketplace will lose.


Here is a five-stock portfolio that should provide excellent results over the long term. To qualify for this list, the company must have a long history of dividend increases. We also took into account the sustainability of those dividends and the amount of yield it was providing. We kept total return in mind, looking for companies with excellent earnings and dividend growth rates, as well as sustainable business models. Since investment amounts are likely to be small to start, we limited our selections to companies that do not charge fees for investing through the plan. We also sought to diversify the companies in terms of industry.


The companies that met these conditions are listed below. By “saving” in the stock of the companies in this portfolio (instead of in a bank savings account), any young investor has the opportunity to participate in the growth of the economy in the most efficient manner possible.

 

International Paper (IP) is the dominant company in the area of paper and packaging, both here and abroad, with almost $23 billion in annual sales and a market capitalization of about $16.5 billion.  With a yield of about 4%, it has raised its dividend for 6 straight years (and its latest increase was 10%).


General Mills (GIS) is a major food processor with products like Big G and Chex cereals, Yoplait, and Pillsbury. The dividend has been increased for 12 straight years and has never been cut in the 114 years that the company has been paying them.


Johnson & Johnson (JNJ) has a market capitalization of about $280 billion and its business is split between drugs, medical devices and products on one hand and consumer goods like Band-Aids, Baby Shampoo, and topical medicines on the other. The dividend has been increased for 53 consecutive years and provides a yield of almost 3%.


ExxonMobil (XOM), is the largest oil company that resulted in the breakup of the old Standard Oil conglomerate (at $333 billion market cap) and routinely logs the largest annual profits of any American company. Its dividend has been increased for 33 straight years and its P/E is under 15.

Aqua America (WTR) has grown through acquisition from the old Philadelphia Suburban into a network of water and wastewater companies from Maine to Florida and into the Midwest states. WTR benefits from utility commissions that recognize the need for clean water and often acquires municipal water companies by offering improved efficiency. Its dividend has been increased for 24 consecutive years.

 

These companies are just a few of the hundreds that offer a DRIP.  Visit this link on our website to see a full listing of "No Fee DRIPs".