Start your kids’ Dividend Farm early

About a year ago, my boys received gift money from grandma.  It was a substantial sum for boys in early grade school.  The gift was primarily earmarked for future college or trade school but could be used for other things.  Starting a business, perhaps?

 

I considered adding the money to each boy’s 529 plan, but their plans are already solid.  Besides, I didn’t want to lock up additional funds in a vehicle with penalties.  Should the boys choose to use their gift on things other than education I don’t want them punished for doing so.

Seed Money

Consequently, I decided to use the money to begin a Dividend Farm for my progeny.  As we farm together we’ll spend time learning about the first seed money planted and how well it progresses between now and when they graduate high school.

 

Along the way we’ll cover basic math concepts, compound interest, the fundamentals of spreadsheets, how to do company research and the resources available with which to do it.  We’ll talk about what can make a company a good addition to the dividend farm.  Comparing and contrasting with alternative investment options will be common.  We’ll discuss risk, budgeting, and priorities in life shaping opportunity-cost decisions.  I’m sure more will enter the conversation as the boys grow in knowledge, understanding, and maybe (hopefully) wisdom.

So what was chosen as the initial investment ground with the seed money g-ma provided?  The Southern Company (SO).  Southern is a Dividend Contender having grown its dividend payments for 19 consecutive years and wielding a stronger Dividend Farming Scorecard than other options explored at the time of purchase.

I added a little money to the grandma stash and purchased 36 shares of SO at $55.34 per share for the boys.  It’ll be split evenly between them when mom and dad decide they’re old enough (read responsible enough) to have their own brokerage accounts.  Until then, it will be “co-managed” with dad while he pays taxes on the dividend income.

SO was yielding 4.4% at the time of purchase.  Assuming it continues at that rate and the boys hold for 10, 15, or 20 years they may stand to split $3,086, $3,841, or $4,780 respectively.

 

These figures assume:

• The boys (or dad) don’t add to the pot during that period.
• There is no growth in the dividend payments even though SO has grown its dividend 3.5% a year, on average, for the past 10 years.
• There is no value appreciation in the stock.

In other words, there’s plenty of upside that can materialize over the years.  Of course, downside lurks as well, but the total upside and its probability of it happening exceeds the downside and its probability from my perspective.  I believe the expected benefit exceeds the expected cost by a wide margin while offering the boys a stable, attractive piece of investing ground in which to cut their teeth. 

The point here is two-fold.  First, we’re making as much use of time as possible allowing compound growth to work its powerful wonders.  Second, the boys get to learn a great deal through practical application – the kind they’ll use in their lives long after I’m gone. 

Building a financial future is important.  Leaving a legacy of learning and knowledge while doing so is priceless.  That’s why it may be a good idea to start your kids’ Dividend Farms early.  

The thoughts expressed here are those of the author, who is not a financial professional.  Opinions should not be considered investment advice.  They are presented for discussion and entertainment purposes only.  For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.