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The Best First Stocks for Kids

Source: Flickr user Steven Depolo.

If you're like many stock market investors, you wish you had begun investing earlier -- much earlier. If you began in your 30s, for example, as I did, you might wonder how much your money might have grown over an additional decade. But what's done is done. Even if you began in your 50s, at least you did begin, and you probably have several decades of wealth-growing ahead of you.

One thing you can do now is help get kids started in investing -- your own kids, for example, or some other urchins you love. The Motley Fool's co-founders, brothers David and Tom Gardner, have explained how they grew up learning about stocks. It has certainly served them well.

In our discussion board community, the topic of getting kids into investing has come up a lot. I'll share some solid advice from board denizens below, followed by a few stocks you might consider for your young ones.

Advice from our boards
Years ago, on our Investing Beginners board, a user named bighairymike offered timeless advice:

Since this is an educational exercise, I would aim for several stocks, even if only one share, in order to see some companies up, others down, observe balance and diversification. Another idea is to pick companies they have heard of ... instead of something esoteric. Also, one that pays a dividend would be useful to their education.

(For a long list of dividend payers we've recommended, grab a free trial of our Income Investor newsletter.)

In that same conversation, a user named bogwan suggested involving the kids themselves in selecting a stock: "Ask them which industries they think will do the best. Then choose a few of those."

Fuskie elaborated on that with some important questions:

How old are the kids? What are they interested in? The first rule of investing is to invest in what you know, so I would ask each of them to come up with a list of public companies that they think have potential from their perspective. Then begin researching them. It will be a lot of work (mostly yours), but they will learn from the process.

A great strategy for finding stocks is to have your kids list products and services they know, like, and, ideally, use. Some examples might be McDonald's, Chipotle Mexican Grill, Coca-ColaPepsiCo, Apple, Disney, IMAX, Netflix, Under Armour, Nike, Costco Wholesale, and Boeing. And there are many more terrific possibilities.

More recently on the boards, someone asked whether there were any good online investment platforms where his kid (and others) might practice and learn about investing. A user named pauleckler pointed to the Fool's own CAPS Community, where thousands of folks rate and discuss stocks, and the performance of their picks is tracked:

I think CAPs is a great program. Get him a username and let him have at it. Once you pick 7 stocks, [The Motley Fool] rates your performance vs. the S&P every day. A positive score indicates you are beating the index. 

Some Fools even discussed stocks for kids on Twitter.

Three contenders
Once you're ready to have your kids investing in some stocks (or warming up to do so by pretending to buy particular companies), you'll need to actually select some. You can choose the ones that you and/or they think are most promising from their list. You may also want to consider the contenders below.

Starbucks fans often start young. Photo: Flickr user Joe Goldberg.

Starbucks (NASDAQ: SBUX  ) is familiar to most older kids, as the company is more than just a coffee shop now, offering many snacks and sweet, kid-friendly drinks. Its stock offers a dividend yield recently near 1.6% and it has been hiking its payout aggressively in recent years. Starbucks' stock can be volatile, but it has done well over the long run, averaging annual gains of 21% over the past 20 years. The company generates more than $1 billion in free cash flow annually, and its revenue (topping $16 billion annually) has more than doubled over the past eight years. The company is expanding its offerings -- recently through its acquisition of Teavana, which is helping to boost sales -- and is always innovating, most recently having announced plans to offer delivery services. Its international expansion plans are promising, too.

Hasbro (NASDAQ: HAS  ) offers a fatter dividend yield, recently at 3.2%, and its stock has averaged 9% annual growth over the past 20 years. You might associate it with just Playskool or Play-Doh, but the gobs of familiar and valuable brands under its roof include Monopoly, Scrabble, Twister, Cranium, Battleship, and Magic: The Gathering, and the company has licensed the right to offer products based on Star Wars, Marvel, and Disney properties. (Think of toys tied to the hit movies Frozen and Guardians of the Galaxy, for example.) It's great for kids, who are usually fans of some of the company's offerings. Hasbro's last quarter was solid, with revenue rising 7% over last year and operating profit up 9%.

Many kids love cars and car companies. Photo: Flickr user trazomfreak.

Ford   (NYSE: F  ) , which is executing a dramatic turnaround in North America, has plenty of short-term business catalysts, including a slew of new vehicle launches in its money-driving North American market, significantly lower debt and pension obligations, Europe's economic recovery, and potential dividend increases. Over the longer term, it can also benefit substantially from international expansion and a turnaround for its Lincoln brand. Ford is a stable, well-run company with a strong balance sheet, competitive products, and big opportunities to increase profits abroad. The automaker recently yielded 3.3%, and its stock has averaged annual gains of 9.5% over the past 20 years. For kids into cars, Ford is a fun company to follow, especially when it releases new and improved models. 

How kids can invest
Remember that your kids are likely minors. That means they aren't allowed to enter into binding contracts, so they'll need assistance from a parent, guardian, or other adult to open accounts at financial institutions. An account opened by a minor and an adult is often called a "custodial" account.

There are alternatives to getting kids accounts of their own. They might informally buy into various stocks or mutual funds through you. For example, if you're buying 50 shares of stock in PepsiCo for yourself, you might include two shares for your child, informally designating them as theirs and keeping good records of who owns what. Learn all about brokerages and find one that's right for you at our Broker Center.

If your kids are teens or clever preteens, you might point them to our book, The Motley Fool Investment Guide for Teens.

However you go about it, getting young people more interested in money and investing can greatly improve their future financial security. Better still, you might well be introducing them to a lifelong interest and source of satisfaction.

Dividends can be powerful for kids -- here are some big dividends-payers
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. Thus our top analysts have put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here.

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Selena Maranjian

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

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