3 Dividend Growth Companies to Teach Your Children About Investing

Mattel, Nike, and Apple are three high-quality companies you can use to teach your children the importance of sustainable dividend growth when it comes to investing.

Jan 15, 2014 at 9:44AM

The sooner your children start learning about money, saving, and investing, the better their chances of being financially successful throughout their lives. Mattel (NASDAQ:MAT), Nike (NYSE:NKE), and Apple (NASDAQ:AAPL) are three great candidates to use to start teaching your children about the basic principles of dividend growth investing.

Mattel is no game
Mattel is a market leader in the global toy industry. The company benefits from popular brands like Barbie, Hot Wheels, Fisher-Price, and American Girl, among others. Kids from different generations have built strong emotional connections with the company and its products, and this is the kind of durable competitive advantage that provides the foundation for sustainable dividend growth over the years.

Even if the industry is quite mature in developed countries, spending on toys and other discretionary items tends to rise with disposable income, and this provides plenty of growth opportunities for Mattel in emerging markets over the long term. According to the company, China and India account for more than one-third of the total population in the world but only 10% of toy industry sales.

The business model is quite efficient when it comes to cash flow generation: The payment cycle is relatively short, the company has operating margins in the area of 16% of sales, and capital expenditures are quite low, in the area of 3% of sales. Importantly, management has committed to consistent capital distributions in the long term, targeting a total cash yield -- dividends plus share buybacks -- in the area of 4% to 6%.

The company has raised dividends over the last 22 consecutive years in a row, it has a sustainable payout ratio in the area of 57% of earnings, and it pays an attractive dividend yield of 3.2%.

Kids of different ages love Mattel and its products; perhaps it would be a smart idea for them to learn how the company translates growing sales into cash flow and dividends for investors.

Nike is playing to win 
Renowned athletes like LeBron James, Roger Federer, and the national soccer team of Brazil have many things in common. Superb talent is one of them; Nike sponsorship is another one. Nike has invested through the decades in sponsoring many of the most popular athletes in the world, and memorable marketing campaigns have made the company's brand the undisputed leader in the global athletic footwear and apparel industry.

A widely recognizable brand, a reputation for quality, and a strong focus on innovation generate superior pricing power for Nike, and the company enjoys economies of scale when it comes to areas like negotiating power with suppliers, marketing, and other expenses.

Nike has raised its dividends in each of the last 12 consecutive years, including a 14% increase announced in November. The dividend yield is quite modest, around 1.2%, but the payout ratio near 27% of earnings leaves plenty of room for further dividend growth.

Sports are not only fun, they're also good for your children's health, and it would be quite easy for your kids to relate to the company that sponsors many of their favorite athletes and provides the clothes and shoes for their own sports activities.

Apple is plugged in for dividend growth 
Children today have an amazingly fluid and comfortable relationship with technology, and Apple has done a lot to foster that relationship with intuitive and easy-to-use products like the iPhone and the iPad.

Lower-priced Android devices have gained market share on a global basis lately, but Apple is still the undisputed leader on the high end of the pricing spectrum. Apple owns one of the most valuable brands in the world and provides customers with a unique user experience. This differentiation allows the company to charge higher prices for its products and generate superior profit margins for shareholders.

In addition to having nearly $147 billion in cash and liquid investments as of the end of the third quarter of 2013, Apple generated nearly $53.7 billion in cash flows from operations over the 12 months ended on Sept. 28. Investments in fixed assets absorbed only $8.2 billion of the company's cash flow, which allowed Apple to allocate almost $10.6 billion to dividends and $22.9 billion to share repurchases in the last year.

The company has a relatively young dividend history. Apple reinstated dividends in 2012 and hiked them by 15% in 2013, but the payout ratio is quite low, in the area of 30% of earnings. The stock pays a 2.2% dividend yield at current levels.

Bottom line
Both knowledge and investment returns compound over time, so the earlier your children start learning about investing, the higher the future rewards. Mattel, Nike, and Apple are particularly good candidates for your kids to learn about the importance of sustainable dividend growth by analyzing businesses they can understand and relate to.

Start investing today!
In our special report "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you what you -- or your kids -- need to get started, and even gives you access to some stocks to buy first. Click here to get your copy today -- it's absolutely free.

Fool contributor Andrés Cardenal owns shares of Apple. The Motley Fool recommends Apple, Mattel, and Nike. The Motley Fool owns shares of Apple, Mattel, and Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers