Helping your kids learn about investing will put them on firmer financial footing later in life. But it can be a challenge to get them interested in the first place. One way to do so is to invest in companies with big dividends, as your kids are more likely to develop an interest in investing if they see that owning stocks can provide them with "free" money.
With that in mind, we asked our team of Motley Fool contributors to share a stock that offers a high dividend yield that could one day make our readers' kids rich. Read below to see what stocks they think can help get the conversations rolling.
Dan Caplinger: Many long-term investors pay little attention to value stocks, figuring their higher-growth counterparts are better plays to match their time horizons. Yet automaker General Motors (NYSE:GM) has some classic characteristics of a solid value stock and a 4% dividend yield to boot.
Skeptical investors remember all too well the fact that General Motors declared bankruptcy after the financial crisis, making them dubious that the carmaker could truly have bounced back. Yet one by one, GM has started to handle major issues, including challenges in its European markets and rising concerns about slowdowns in other once-stronger economies such as China and South America. Moreover, General Motors still has most of its exposure to the key North American market, where conditions have been extremely good, with auto sales on track to reach record levels this year.
With the stock trading at just seven times what investors expect the automaker to earn in 2016, General Motors' shares are pricing in a dismal end to the auto boom, and anything less severe than the worst-case scenario could turn out favorably for shareholders who are willing to take on the risk of a cyclical company like GM.
Brian Feroldi: While making an investment in a real estate investment trust, or REIT, won't make for the most interesting conversation, it can be profitable over the long term. REITs get a nice tax break from Uncle Sam if they pay out the majority of their income to their shareholders, keeping yields in the sector high. One company I like in the space is STAG Industrial (NYSE:STAG), a fast-growing small cap with a unique business model that's yielding 7%, distributed monthly.
The name "STAG" is an acronym for Single Tenant Acquisition Group, and as the name implies, the company buys industrial properties that house only a single tenant. While this strategy would be risky on a single property, because the company invests in hundreds of them, its risk gets spread out over a huge customer base, providing the company with stable returns. Better yet, since this is a strategy few other REITs follow, the company faces less competition for new properties, which allows it to acquire properties that provide better returns.
Since the company's IPO in 2011, its asset base has grown by 286%, and the company has increased its dividend payment by 7% a year. With an estimated addressable market of nearly $1 trillion, it still has plenty of room left to grow.
STAG offers investors a combination of high growth and a high yield right now, so I think it's a potential stock to buy for your kids, as they will enjoy watching an ever-rising stream of dividend payments hit their brokerage accounts each month.
Matt Frankel: One great high-dividend stock for the long haul is Welltower (NYSE:HCN), formerly known as Health Care REIT. As the former name implies, Welltower is a real estate investment trust that focuses on healthcare properties -- mainly senior housing, post-acute care, and outpatient medical facilities.
There are several reasons to like Welltower. For starters, the company is the largest healthcare REIT in the market, and it has formed excellent partnerships with some of the best facility operators in the market, such as Sunrise Senior Living, Genesis Healthcare, and Brookdale Senior Living. In fact, 82% of Welltower's 2015 investments were made alongside its current partners.
Also, Welltower invests in properties in desirable areas, where median incomes and real estate values are significantly above average. The company's properties are newer and more desirable than those of competitors -- for example, Welltower's average senior housing property is just 12 years old, as opposed to the 18-years average of its peers. A superior real estate portfolio is one of the main reasons Welltower's occupancy rate of 95% handily beats the competition.
Finally, the demographic and market trends are extremely favorable for healthcare real estate. From 2015 to 2050, the population of the 85-and-older age group is expected to triple, growing much faster than the rest of the population. And, since the $1 trillion healthcare real estate market is highly fragmented, there will be no shortage of opportunities going forward.
Welltower pays an attractive 5.1% dividend yield, and has increased the payout consistently since its 1970 IPO. Even more impressively, the stock has averaged total returns of 15.6% since inception -- a remarkable level of performance to sustain over such a long period of time.
Selena Maranjian: One strong long-term performer that could make your kids rich is PepsiCo (NASDAQ:PEP). A particular advantage it offers is that it's familiar to most kids, so they can learn more about it and keep up with it easily. Its relatively simple business model helps, too.
One under-appreciated aspect of PepsiCo is that it's far more than just a beverage giant; it's a snack giant, too. Jot down as many brands of potato chips, tortilla chips, and pretzels you can think of, then see how many belong to PepsiCo. Even doing the same with your favorite beverages might surprise you. A full 22 of PepsiCo's many brand names bring in more than $1 billion in revenue annually, with that roster including not only the flagship Pepsi soda, but also 7UP, Tropicana, Aquafina, Mountain Dew, Lipton iced tea, Gatorade, Lays, Tostitos, Cheetos, Ruffles, Quaker Oats, Doritos, and more. Other PepsiCo names include Sabra hummus, Naked juices, and Stacy's pita chips.
PepsiCo's latest quarter showed strength despite the strong dollar that shrunk the value of its overseas sales. Organic revenue increased by 7%, with snacks jumping 10% and drinks advancing 5%. Management upped its projections for the year, too, which bodes well. The company is increasing its efficiency, expecting to save about $1 billion this year, and it's committed to returning a whopping $9 billion to shareholders over the year via dividends and share buybacks.
PepsiCo stock was recently yielding a solid 2.8%, and that payout has grown by an annual average of 8% over the past five years, with the company having boosted its payout in each of the past 43 years. PepsiCo is a free-cash-flow powerhouse, too, generating more than $7 billion annually.
Sean Williams: The easiest way to get your kids excited about investing is to buy stock in a company that makes a product or service that interests them. As I look around today and see kids of all ages enamored with technology, I see no better investment opportunity than telecom and content giant AT&T (NYSE:T).
Why AT&T? For starters, telecom infrastructure is itself a very high-barrier business. With only four true industry giants in wireless, and just a handful more in landline and broadband, AT&T offers next to no "out of left field" surprises. AT&T also has a rich history, ranking as one of the top 25 most patriotic brands with loyalty engagement researcher Brand Keys, and offering an exceptionally low churn rate of just 1.33% based on its latest quarterly results. The acquisition of DirecTV also expands the way it can market to consumers, creating a one-stop content experience for many of its customers.
AT&T's slow but steady growth rate won't have its stock doubling in quick fashion, but its consistent cash flow and premier pricing power allows the company to pay out what's currently a 5.6% yield. If you purchased shares of AT&T for your child or children and reinvested the payout back into more shares of stock, you could double your investment (assuming no stock price appreciation or dividend growth) in a hair over 12 years.
Imagine this: If the above variables of a 5.6% yield and no stock or dividend growth remain true, and you invested $10,000 in AT&T stock today for a young child, continuing to roll all dividends paid back into the stock, your child would have nearly $263,000 when he or she retires 60 years later. If AT&T's stock grows at just 5% per year over those 60 years, you (or your child!) would have more than a half million dollars!
Brian Feroldi owns shares of Stag Industrial. Dan Caplinger has no position in any stocks mentioned. Matthew Frankel owns shares of AT&T; and Welltower. Sean Williams has no position in any stocks mentioned. Selena Maranjian owns shares of PepsiCo. The Motley Fool owns shares of and recommends PepsiCo. The Motley Fool recommends General Motors, Stag Industrial, and Welltower. Try any of our Foolish newsletter services free for 30 days.
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