For those of you who are parents, you probably spend your entire life ensuring your children have as good a life, if not a better life than you've had. You want them to go the best schools, find a great career, and ultimately be financially successful.
But, what do you do when your own children have grown up and have children of their own? If you've planned ahead and taken care of your own financial situation, perhaps it's time to help shore up the future of your grandchildren so they too can go to the best schools and possibly pass their successes to another generation.
The advantages of gifting stock to your grandchildren
For grandparents looking to gift to their grandchildren, there are a few options. Obviously, a grandparent can consider giving cash to their grandchild to be directly saved or invested via a trust. In 2015, the IRS will allow you to give up to $14,000 free and clear to a beneficiary without any tax implications.
However, a potentially more intriguing idea could be gifting stock to your grandchildren. Gifted stock (usually in the form of a trust, since children aren't eligible to be stockholders) will hold the same cost-basis and length of ownership when transferred from grandparent to grandchild. In other words, that Coca-Cola stock that your grandfather bought for a split-adjusted $2.65 per share 25 years ago will maintain its same cost-basis, and will be taxed at the long-term capital gains rate of 0%, 15%, or 20% (depending on the grandchild's marginal tax bracket) once sold.
Gifting stock is also a particularly smart move if it's believed that a stock may continue to motor higher over the long run. Not only can the grandchild take advantage of years of additional share price appreciation, but a grandparent can lower his taxable estate by distributing it down the line to his or her grandchildren. One thing you do want to keep in mind, though, is that a gift of stock or cash isn't something you can write down on your taxes, so make sure you don't make that mistake!
Three stocks you can gift your grandchildren right now
Now that you have a better understanding of some of the advantages of gifting stock to a grandchild or grandchildren, let's examine three stocks you can consider buying right now and handing over to your grandchildren for the long term.
Procter & Gamble (NYSE:PG)
An easy way to connect your grandchildren with a great investment is to expose them to a company that owns a veritable laundry list of products that you'll find in the grocery store (and yes, that pun was entirely intended).
Procter & Gamble is the company behind Tide detergent, Crest toothpaste, Pampers diapers, Bounty paper towels, Charmin toilet paper, and a bevy of health, beauty, baby, and cleaning products. Best of all, a lot of what P&G sells are basic-needs goods. We need to brush our teeth, wash our clothes, and buy toilet paper regardless of whether the U.S. economy is growing at 5% per year or contracting at 3% per year. It means the demand for P&G's products doesn't change very much, and if anything, it tends to rise with a growing population. Ultimately, Procter & Gamble has little incentive to discount its products, leading to strong pricing power and profits.
While P&G's rapid growth may be in the rearview mirror, its consistency in the U.S. market, exposure to faster-growing emerging markets, and 58-year streak of growing its dividend could really be a boon over a decade or longer for a grandchild.
General Electric (NYSE:GE)
Want a good way to expose your grandchildren to the technology, health care, and energy sectors all at once? That's where General Electric and its 3.5% dividend yield come in!
General Electric showed that it's not completely foolproof during the last recession, but it's significantly reduced the importance its GE Capital unit plays in its profitability. Instead, the new GE is focused on building jet engines, wind turbines, locomotives for the transportation industry, MRI machines for the medical field, and dozens upon dozens of other products. In other words, it's a great company to own if you believe the U.S. economy will grow over the long run, since demand for its products tends to fall in line with the performance of the U.S. economy.
Your grandchildren are likely going to grow up in a world that's more reliant on alternative energy, diagnostic medical imaging, and more fuel-efficient transportation sources. In essence, it's a world designed for GE to succeed.
Lastly, consider putting yourself in the same shoes as your grandchildren who are still learning the value of a dollar and want nothing more than to spend, spend, spend! Use that mentality to your and their advantage by gifting your grandchildren shares of Visa stock.
Visa and its peer MasterCard are unique from other payment processing facilitators in that they aren't lenders. Their sole purpose is to be the middleman between the merchant and the consumers' financial institution. This model ensures that Visa and MasterCard aren't exposed to delinquent debt and allows them to simply take advantage of both the number of growing transactions, and rising gross dollar volumes being processed via credit and debit cards.
According to MasterCard, 85% of the world is still conducting its transactions in cash, meaning there's a huge global opportunity for Visa to still grow rapidly. Not to mention, a higher barrier to entry would make it difficult for just any company to enter the payment processing space. It's the type of investment that could see its share price and dividend appreciate notably over the next decade or longer.
Are these the only three stocks to gift? Certainly not, but I'd suggest they'd be a great way to get your grandchildren started off on the right path.