If you're looking for a graduation gift that will make a lasting statement, consider giving a portfolio of high-quality, dividend-paying stocks. This gift can result in a value of hundreds of thousands (or possibly millions) of dollars, over the long term. But yes, you can afford it!
You just need to build the portfolio using companies that offer direct investing through dividend reinvestment plans (DRIPs). Your gift is a single share of the company stock and enrollment in the company DRIP. As a DRIP investor, the gift recipient will be able to accumulate and compound wealth with remarkable results over the long term.
A few years ago when my then 15-year-old grandson asked for athletic shoes for his birthday, I gave him the sneakers, but I also gave him a single share of stock in shoe retailer Foot Locker. I told him that as a shareholder, he was entitled to join the company's DRIP and that if he continued to fund his DRIP account, it would keep him and his future family in shoes—and a lot more. I wanted him to think about saving and investing for his future needs (or wants) by acquiring shares of the companies that make the products he uses and likes.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Unlike gifts of money, which are likely to be spent frivilously, or electronics that will become obsolete, gifts of high-quality dividend paying stocks are likely to appreciate in value—and greatly appreciate over the long-term.
What's more, the graduate will gain first-hand experience with a logical approach to investing. Many of us might have an emotional barrier that keeps us from investing and the risk of loss that comes along with it. But the truth is, there's no real mystery to investing. Successful investors follow a logical approach that is destined to provide favorable results over the long-term.
With DRIPs, you employ a rationally sound investing regime that takes the mystery out of wealth accumulation. First, you build up a portfolio that represents a variety of industries, and second, you invest even very small amounts (say, $25 at a time) to buy shares or portions of shares. Over time, you will have accumulated shares at a variety of price points—likely having acquired more shares at the lower price points!
It's a great pleasure to see how much your share ownership has grown over the year—especially because the small investment amounts were made with incidental money that might otherwise have been spent on a latte or a bad movie. As the years pass, those shares will compound in a snowball effect that Einstein described as "the eighth wonder of the world."
So, instead of writing a check to commemorate an important graduation, a five-stock portfolio (or larger if you see fit) can cost about what you may want to spend, but the lifetime effect of that gift will be truly amazing.
To put together this five-stock portfolio of DRIP stocks that I am suggesting, I looked for companies that have a long history of dividend increases. I also kept total return in mind, looking for companies with excellent earning and dividend growth rates, as well as sustainable business models. Since investment amounts are likely to be small to start, I limited my selections to companies that do not charge fees for investing through the plan. I also sought to diversify the companies in terms of industry. Here are the companies I recommend:
International Paper (symbol 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 six 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. It has been paying a dividend for 114 years, has never cut it in that time and has increased its payout for the past 12 straight years.
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 bandages, baby shampoo and topical medicines on the other. The company has increased its dividend for 53 consecutive years.
ExxonMobil (XOM) is the largest oil company that resulted in the breakup of the old Standard Oil conglomerate with a $333 billion market cap. It routinely logs the largest annual profits of any American company and has increased its dividend for 33 straight years.
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. It has increased its for 24 consecutive years.
By investing in the companies in this portfolio (instead of saving in a bank account or a certificate of deposit), any young investor has the opportunity to build wealth by participating in the growth of the economy in the most efficient manner possible.
These companies are just a few of the hundreds whose shares you can purchase directly—and commission-free—through their company-sponsored DRIPs. These companies actually pay the investing fees for you once you've enrolled in their DRIPs—and you can enroll with the purchase of just one share in most cases. For our complete list of companies that offer a no-fee DRIP, click here.
Ms. Vita Nelson is is the Editor and Publisher of Moneypaper's Guide to Direct Investment Plans, Chairman of the Board of Temper of the Times Investor Service, Inc. (a DRIP enrollment service), and co-manager of the MP 63 Fund (DRIPX).
-
Is Your Social Security Earnings Record Wrong? Here's How to Fix ItYour Social Security benefits are based on your Social Security earnings record. It's important to review your records to avoid having your benefits reduced.
-
Stock Market Today: Markets Discount Another U.S. DowngradeAfter Friday's closing bell, Moody's followed Standard & Poor's and Fitch and cut its rating on U.S. government debt.
-
Donating Complex Assets Doesn't Have to Be ComplicatedIf you're looking to donate less-conventional assets but don't know where to start, this charity executive has answers, such as considering a donor-advised fund (DAF) for its tax benefits and ease of use.
-
Think a Repeal of the Estate Tax Wouldn't Affect You? WrongThe wording of any law that repeals or otherwise changes the federal estate tax could have an impact on all of us. Here's what you need to know, courtesy of an estate planning and tax attorney.
-
In Your 50s? We Need to Talk About Long-Term CareMany people don't like thinking about long-term care, but most people will need it. This financial professional recommends planning for these costs as early as possible to avoid stress later.
-
Social Security Pop Quiz: Are You Among the 89% of Americans Who'd Fail?Shockingly few people have any clue what their Social Security benefits could be. This financial adviser notes it's essential to understand that info and when it might be best to access your benefits.
-
Such Attractive Yields in High-Grade Munis Are Rare and May Not Last LongAccording to this munis expert, the last time munis were this cheap was a brief period in 2023. If you kicked yourself for missing out then, you have a second chance now.
-
Financial Analyst Sees a Bright Present for Municipal Bond InvestorsHigh-tax-bracket investors have an excellent opportunity to secure low-volatility, high-quality returns at yield levels rarely seen in over a decade.
-
I'm an Insurance Pro: How Not to Get Dumped by Your Insurance AgentYour insurance agent or broker might show you the door if you do any of these five things. Being a good customer is about more than paying your bill on time.
-
Two Estate Planning Issues You Should Never OverlookThis estate planning attorney explains why proper asset titling and beneficiary designations make a big difference when it's time to transfer your wealth.
