With the holidays rapidly approaching, one of the best gifts you could possibly buy for your children is an early start at investing. But what stocks make good choices for kids?
We asked three of our analysts for their picks on great stocks for kids, and this is what they had to say.
Matt Frankel: A great stock to buy for your kids could be Realty Income (NYSE:O). And although this may seem like a strange choice to get your kids into investing, I'll give you three good reasons why it works.
First, kids need to be invested in something they can see. Children don't really care about things like P/E ratios, growth rates, and other common investing metrics. If they can't see it, they'll lose interest. And Realty Income is an investment in something they know. The company's largest tenants include Walgreens, AMC Theatres, Family Dollar, and Regal Entertainment, just to name a few -- all businesses your kids see all the time.
Second, since it's a monthly dividend stock, your kids will see firsthand how investing can produce a nice stream of income. And the monthly payments will come frequently enough to keep them interested.
Finally, Realty Income has a steady, proven track record of delivering growth, which can serve your kids well for the rest of their lives if the trend continues. Over the past 20 years, Realty Income has averaged a total annual return of 16.4%. To put that in perspective, if your child is 10 years old and you buy $1,000 worth of Realty Income stock, at that growth rate he or she could have an investment worth more than $400,000 at age 50.
Keith Speights: I think that Johnson & Johnson (NYSE:JNJ) checks off all the criteria you would want when buying a stock for your kids. First, J&J is a good business to buy into, with a strong presence in multiple areas of health care, including consumer products, prescription drugs, and medical devices. The company was founded way back in 1886 and seems positioned to succeed well into the future.
Matt is spot-on about getting your kids invested in something they can see. If you buy J&J shares for them, you can point to the Band-Aids and Tylenol in your medicine cabinet. When TV commercials air for Xarelto or other J&J drugs, you can remind your children that they own a part of the company behind those medications that make a difference for many people.
And as your kids get older, buying J&J stock should have a good chance of making them plenty of money. It pays a solid and steady dividend. J&J also continues to innovate and introduce new products. This same company whose products you used to wash your kids' hair when they were babies could very well be the same company whose products make possible their hip replacements when they're grandparents.
Leo Sun: Walt Disney (NYSE:DIS) is the perfect stock to buy for your kids to teach them about investing. Next time you take them to Disney World, ask them how much money they think the company's theme parks make. When you take them to watch the latest Marvel, Pixar, or Star Wars film, let them know that they all work for the House of Mouse. Ask them why Spider-Man and the X-Men don't hang out with the Avengers. When you hear "Let It Go" on the radio for the thousandth time, tell them that Frozen is the highest grossing animated feature of all time. (Toy Story 3 comes in second.)
When you watch a football game on ESPN or a show on Once Upon a Time on ABC, tell them that those brands are also part of the Disney empire. When Disney pays its dividend at the end of the year, tell them how much Mickey paid, and how many "free" theme-park tickets that equals.
Aside from being a fun stock to talk about, Disney is a great stock to buy and hold forever. Between fiscal 2004 and 2014, Disney's annual revenues rose 59% as operating income soared 190%. Over those 10 years, the stock climbed 240%, easily crushing the S&P 500's 77% gain.