Starting A Dividend Growth Portfolio At Birth

Back in March of this year I wrote an article titled, “There’s A New DivHut In Town,” announcing the birth of my first child and how I wanted to set up an account in his name and begin a dividend growth portfolio starting at age zero. Talk about having compounding time under your belt. The goal was simple: Create a diversified portfolio of several dividend paying stocks, add fresh capital periodically and reinvest all dividends automatically. And so the journey began in May. After settling into fatherhood for about two months, Mrs. DivHut and I set up a custodial account for baby DivHut. We looked into 529 plans and other “tax efficient” vehicles for baby DivHut but ultimately decided we wanted a couple decades to grow his account and passive income stream without any “strings” attached regarding usage of his funds nor penalties for accessing the account in a manner that was not consistent with these “tax efficient” vehicles. In this way, baby DivHut might have a tax bill every year on his dividend income but he will be able to access his dividends as cash to use for whatever he wants without any consequences. Of course, this notion isn’t completely foreign. Jason Fieber of Dividend Mantra wrote a great piece explaining his reasons for Holding 100% Of His Equity Investments In A Taxable Account rather than a ROTH or other retirement vehicle. The essence of the article can best be summed up in one sentence he wrote, “I’m going to be accessing my dividend income extremely early in life.” Giving baby DivHut at least twenty years of investing and compounding growth gives him a pretty good chance to do the same. It should be noted that I’m not against tax efficient investment vehicles. I hold my Canadian banks stocks in a ROTH and have my health REITs in an IRA. Should baby DivHut one day want to open a retirement account of his own and contribute to it annually I’d give my blessing. With that being said, let’s take a look at the companies in baby DivHut’s current portfolio as well as other names I am considering.

 

Portfolio

SymbolDescriptionQuantity
CATCATERPILLAR INC6.6428
EMREMERSON ELEC CO COM24.0291
ITWILLINOIS TOOL WKS INC6.0774
JNJJOHNSON & JOHNSON8.0774
ULUNILEVER PLC - ADR12.7113
VFCV F CORP7.0163
YUMYUM! BRANDS INC6.3215

 

Sector Allocation

SectorSector %Market Value
Industrial Products48.35%$2,128.92
Medical17.61%$775.35
Consumer Staples12.47%$549.13
Consumer Discretionary11.40%$502.09
Retail/Wholesale10.17%$447.82

 

As you can see above, baby DivHut’s portfolio skews heavily towards industrial names. Of course, this isn’t by accident as the entire industrial sector got hammered in recent weeks only to slightly rebound in the last few days. I’ll admit, I jumped on board the sector a little heavily. No doubt, this portfolio is not complete by any means as I am looking to add more diversification from the consumer staples and health sectors. Names that I am considering adding to his portfolio in the coming months/years include, in no particular order, General Mills, Inc. (GIS), Pepsico, Inc. (PEP), The Coca-Cola Company (KO), The Procter & Gamble Company (PG), Colgate-Palmolive Co. (CL), Archer-Daniels-Midland Company (ADM), Becton, Dickinson and Company (BDX), Abbott Laboratories (ABT), W.W. Grainger, Inc. (GWW) and Kimberly-Clark Corporation (KMB).

 

Going forward, I’ll probably write these baby DivHut portfolio updates about two or three times a year as not much will change on a month to month basis with his holdings nor dividend income. At the very least this will be a real world “experiment” of sorts that can show the power of long term dividend growth and how simply holding quality companies, reinvesting dividends and rarely, if ever, selling can create a substantial passive income stream.

 

What do you think about creating or contributing to a dividend growth portfolio for your child or other young relative in your family? I’d love to hear your own suggestions for selecting individual stocks as well as sector allocation ideas.

 

Disclosure: Long GIS, PEP, KO, PG, CL, ADM, BDX, ABT, GWW, KMB, CAT, EMR ITW, JNJ, UL, VFC, YUM

95 thoughts on “Starting A Dividend Growth Portfolio At Birth

  1. Nice one, surely little DH will have a big present when he turns “adult” and will get the account to manage himself! 🙂 I would have added PEP, MMM and a Reit, but that’s just me maybe 😛

    ciao ciao

    Stal

    • Hi Stalflare,

      Appreciate the input. I always love hearing about potential investments for my portfolio which is why I like our online finance community. I hope to teach baby DivHut the value of investing long term, patience and selecting quality companies over “unicorns” that seem to garner most of the media attention. PEP and MMM are both good choices long term. The only reason that I did not select a REIT is because the way the dividend/distribution may be taxed as return of capital. Thank you for stopping by and commenting.

  2. Great idea, DH. Looks a nice starter portfolio as well!

    I am definitely in favour of starting a dividend portfolio for a new child. Its a simple and effective way of setting them up well for the future. What is more, when they get to a decent age you can start involving them in managing their own money so you have a very direct way of teaching them how to control their investments and finances!

    Definitely add a bit of Procter & Gamble. I have recently added a little myself. For the long term investor I think anything below $75 is a pretty good price! With a investing horizon as long as Baby DH almost any price should do them well (like J&J).

    Keep up the good work!
    Dividend Drive recently posted…September 2015: Dividend Income, Trading Activity and Portfolio SnapshotMy Profile

    • Hi DD,

      There’s no question I want to get baby DivHut involved in owning pieces of businesses as soon as he can comprehend what it means. Perhaps a first lesson when he is a young child will be explaining to him all the diapers he went through as a baby and how he helped PG’s and KMB’s bottom line. I’m obviously looking very long term regarding his portfolio holdings which is why I’ll focus more in the steady dividend growers rather than the high flying growth companies. Boring is OK with me in this case. Thank you for sharing your thoughts.

    • Jim,
      Just about everything effects fafsA I think the best way to do this would be to just keep its I n the parents name and then transfer/sell at the desired age.

      • Disclosure: I’m not a tax advisor, but yes. Keep it in the parent’s name. You’ll pay a higher tax rate (I think), but the child won’t have the assets on the books when it comes to applying for financial aid.

        Personally, I have small accounts in my children’s names to use as an educational tool around investing, and what it means to own a stock. It’s about $1,000 per child (starting amount, at/near birth)… a way for them to feel direct ownership, which I don’t think they feel the same if it’s in the parent’s name.

        David
        David Bressler recently posted…How do you lose 25 years?My Profile

        • Hi DB,

          You bring up an interesting point regarding the attachment a child feels when he sees his own portfolio under his name rather than under the name of a parent. This is a real world exercise in long term dividend investing and compounding and will no doubt be a great teaching tool for baby DivHut as he gets older. Thank you for your reply.

          • Thanks.

            I received a gift of 5 shares of stock when I was a kid. As a result, I became an “investor”.

            When my friends started having kids, I did the same for them – at “majority age” I’d give them $250 worth of stock in a company (varied – but usually P&G, XOM, GE)… one of the things I heard back from the parents was a joke/complaint that now they had to fill their car at Exxon stations (and spend more on gas) because their child asked to fill the car up at “my gas station”.
            David Bressler recently posted…How do you lose 25 years?My Profile

            • Great story. It’s amazing how sometimes a gift of stock (boring for kids) can really influence a future investing habit. You know, it’s funny that your friend’s child wanted to fill up at “his” gas station. As an adult I feel the same way wishing to buy a PG or UL product rather than a CAG item for example. Or when in the junk food mood go to a YUM or MCD restaurant. Thanks for sharing this story.

                • Hi Jim,

                  For me it’s all about the time and longevity of these investments and compounding, rather than potential FAFSA issues in two decades. Your comment does stress an interesting point about possession though. Seeing something in your name does make anything more tangible. Thank you for your reply.

      • Hi nick,

        These assets will affect a FAFSA application but as I mentioned to Jim, who really knows how much government aid will be available in two decades time. Student debt is at a pretty serious level already and it seems that college tuition keeps rising while the value of most degrees keep declining. Thank you for the reply.

    • Hi Jim,

      As far as I can tell having assets under his name will impact potential FAFSA aid. To be quite frank, in two decades time, I’m not really sure how much government aid one can expect to receive with all the entitlements this country must fund from low income child care to social security to Medicare payments. The more one can take care of oneself the better without reliance on big government handouts. Also, I won’t be totally upset if baby DivHut decides to not to go college. It’s sad that most higher education does not really pay. Most degrees are worthless and the debt accumulated towards these worthless degrees is staggering. If he decides to get a job out of high school or start a business of his own I would encourage it. Thank you for commenting.

        • Hi Jim,

          You are right in that regard. The truth is that I don’t really “care” or “think” too much about the future as no one can accurately predict anything. Not I, nor the “experts.” I just want to take basic steps today to potentially set up a better financial future for my son. The best way I can do that is to invest in high quality dividend paying stocks, don’t chase yield, diversify and reinvest for the next two decades. Whatever will be, will be. Thank you for your reply.

  3. I like the idea DivHut. I set up, and have been funding, a trust fund for our son. We thoughts about a 529 also, but our taxes are low now……and I don’t like giving up the flexibility. What you’ve done is almost a can’t lose, with as many years of compounding as your son should enjoy.

    I hope you have a great week
    -Bryan
    Income Surfer recently posted…Opportunity Seized!My Profile

    • Hi IS,

      Glad to see you are on the same page setting up a trust for your own son and building a nice nest egg for him. Like you, I decided to forego a 529 because I too want the flexibility a simple custodial account offers. In two decades, who really knows what value a college education might have especially when factoring what it may cost down the road. I fear, the cost will not be enough to justify the value of a degree earned. As always, I appreciate your comment.

  4. Hello,

    I’m going to open a custodial acorn for my niece. It will be 100 shares each of NSM, ITM, NMZ, & BFK.

    Muni Bond funds are tax exempt, at least on one level (fed or state) and they pay healthy dividends.

    My sister & my niece live all the way across the country, so I will contribute to the DRIP for occasions such as Birthdays, Graduation, etc.

    Like you, I don’t want her to be restricted by using a “tax efficient” vehicle.

    Thanks 🙂

    • Hi Paul,

      Thanks for sharing your custodial holdings for your niece. No doubt, you are setting yourself up to be her favorite uncle down the road 🙂 I think it’s great that you are thinking about her future and realize the value of time with any investments. I have decided to go the route of individual stocks, but bond funds, closed end funds and the like can equally create a healthy nest egg with many years of compounding. I plan to tell family and friends that any cash baby DivHut will receive for birthdays and special events will go 100% to his stock portfolio. Thank you for commenting.

    • Hi Liquid,

      I fully agree that anything health related has a long term tailwind at its back. The goal is to diversify the portfolio over the coming months and years and then simply add to the current holdings. Interesting idea about having a baby choose a stock randomly. These days a baby’s pick might very well outperform the “experts” we see and read about. Thank you for stopping by and commenting.

    • Hi FV,

      We keep reading about time and compounding. We are bombarded with articles about how finite time is and how time favors the young, both physically and financially which is why that baby snowball has already started its roll down the hill 🙂 I appreciate your comment.

  5. That’s the plan for us as well. 18 years of compounding will be a huge headstart for baby DivHut. Looks like a solid start to the portfolio and the names you have on the list look excellent as well. Not barn burners but steady eddy growers. It won’t be the most tax efficient but a solid REIT like O might be another one to consider.
    JC @ Passive-Income-Pursuit recently posted…Archer Daniels Midland Co. Is Approaching Buy TerritoryMy Profile

    • Hi JC,

      As you commented, “Not barn burners…,” which is how I built my portfolio and how I want baby DivHut’s portfolio to resemble. I figure with two decades to compound, I really need to focus more on long term dividend income growth rather than just capital appreciation. Besides, I just love sleep well at night portfolios.

      Baby DivHut’s portfolio may not be the most exciting but it will consistently be paying out growing dividends. I did consider REITS, such as VTR, HCP or HCN but decided against it because they won’t be the most tax efficient in his custodial account. Besides, there are dozens and dozens of other great, high quality dividend payers out there to choose from. Thank you for stopping by and sharing your thoughts.

  6. Hi DivHut,

    I feel much the same as you and others here. I started a small taxable account for my kids because I don’t know what they will want to do in 20 years! I also want to be able to pull the money out in emergencies, or just have ultimate flexibility. I think its awesome that you are starting this account so young. Will give the little one a great start to life!

    -Adam
    Adam – IWTRS recently posted…Sunshine Blogger AwardMy Profile

    • Hi Adam,

      Exactly my thoughts. The world is changing so fast. We cannot even comprehend what medical or technological advancements we’ll see in five or ten years, let alone twenty. Just think what your computer, phone or even the Internet looked like a decade ago. A custodial account provides the ultimate in flexibility as you can choose to do what you want with the money whenever you want, no strings attached. Personally, I don’t think many will choose to go to college in a couple decades. The cost, at this rate, will never justify the reward of a degree. I appreciate your comment.

  7. Wow so cool, I will certainly be doing the same thing. I plan to build m my child a financial fortress with a large army to help him/ her weather whatever the world may be like at that time. I also plan on asking our family for small bits of stock instead of baby clothing etc. We will be planning ahead and buy baby clothing and washable toys at garage sales for pennies on the dollar and invest the difference for them. It will be awesome to see the power of compounding, what a lucky baby DivHut.
    Andrew recently posted…A Minimal Lifestyle Doesn’t Have to Mean a Minimal LifeMy Profile

    • Hi Andrew,

      Looks like you have your financial ducks already in a row. Good for you. Most don’t think about their own financial future let alone the future of their own child till much later in life. I like your metaphor of building a ‘financial fortress with a large army.’ Work hard for your money and it should work hard for you. I have already told family and friends that any cash gift baby DivHut will receive will go 100% towards his stock portfolio. I hope that most will get the message that toys and clothes are coming via hand me downs and like you garage sales, etc. We have been very fortunate thus far to receive, literally, several garbage bags full of clothes from family and friends that have children slightly older than baby DivHut. To date, we did not buy him one outfit. I once heard Dave Ramsey say that babies are not expensive rather parents’ egos’ are. A second hand stroller will do just fine and doesn’t need a Mercedes emblem either. Here’s to the future and many, many years of compounding. Thank you for stopping by and commenting.

  8. It’s great that you are starting Baby DivHut in this early. It will be good for him to have a foundation for him to build wealth. If I were you, I’d not only instill good financial habits, but also make sure that he has a few years of work experience under his belt before you ever let him have access to this money. Even if he uses it to retire early, at least he would have built character in a way that comes with years of submitting to the authority of a manager, showing up somewhere on time, working together with a team, dealing with customers and handling stressful situations, etc. It shouldn’t be a Get-Out-Of-Work-Free trust fund for him to use to buy fancy cars and whatnot.

    As for using taxable vs tax advantaged accounts, I do the same thing as Jason Fieber. However, a Roth IRA can be used to retire early as well. After five years, you can withdraw your contributions (but not your earnings!!!!) completely tax free, even if you are under 59 1/2. So if you put in $25,000 and that portfolio grows to $125,000, No-Longer-A-Baby-DivHut can still withdraw $25,000 completely tax free. I would do your own research on the details so that no costly mistakes are made.

    Sincerely,
    ARB–Angry Retail Banker
    ARB recently posted…Your Guide To Banks That Don’t Use ChexSystemsMy Profile

    • Hi ARB,

      There’s no question that we want to teach baby DivHut good financial habits. By us setting up a custodial account for him at birth we simply want to take advantage of something that we do not have as much of, time. This exercise is by no means, as you put it, “a Get-Out-Of-Work-Free” fund. We hope to instill good work, saving and investing habits for baby DivHut as he grows. Ideally, I’d love for him to work for himself or find some job he enjoys for about twenty years, all the while continuing to build upon his portfolio. If that happens, baby DivHut would be in a unique position of being 40 years old with forty years of compounding and reinvesting under his belt.

      Thank you for the ROTH withdrawal tips too regarding the allowance for contribution withdrawals but I go back to the Jason Fieber comment and think that baby DivHut will be accessing his dividend income very early in life, well before retirement age which by then may be at 80 years old. Thank you for stopping by and sharing your insights.

  9. Great idea and I agree strongly with ARB’s points. Working in estate planning I deal with trusts and taxes a lot. I’m sure you’ve considered this, but you are going to need some restrictions on access and having some money as a ROTH is worth considering as ARB said, the contributions to the ROTH have already been taxed and can be removed prior to 59 1/2 and you reap the benefits of the tax free growth. (This is NOT legal, financial, or tax advice.)
    Dividend Chimp recently posted…CVS Health (CVS) vs. Walgreens Boots (WBA)My Profile

    • Hi DC,

      Thank you for sharing your insight regarding a ROTH account for baby DivHut. This is just our first step in creating a dividend income stream for our son. The custodial account seemed to make the most sense for us to start with but we’re also open to one day opening up a ROTH or other tax advantaged account alongside his taxable account. One step at a time, of course. We’ll see how fast his dividend income stream grows as well as how much we contribute annually. All these factors will influence our decisions going forward. Thank you for stopping by and commenting.

    • Hi Dividendniche,

      This will be a real world example of what long term dividend growth can achieve and the power of time and compounding on investments. As I stated in the post, I plan to write an update two or three times a year as not much will change on a month to month basis with the portfolio. I too am looking forward to seeing what develops over the years and how baby DivHut’s own dividend snowball grows. Thank you for commenting.

  10. Keith,

    Awesome stuff. It’ll be great to see how this plays out for baby DH.

    You said you plan on adding capital periodically, but even just assuming a 7% compound annual growth rate means this portfolio should roughly double every decade. So that means in 20 years you’d be looking at almost $18k for baby DH even if you don’t add another penny (factoring out taxes and inflation). With mild inflation, that’s a nice little chunk of change all by itself. But with you adding capital periodically, this should be a really meaningful amount of money/income for baby DH. Keep it up!

    Thanks for the mention, by the way.

    Cheers.

    • Hi JF,

      I mentioned the “adding money periodically” as I haven’t really mapped out a target figure I’d like to add to his portfolio over time. I can see some years adding hundreds of dollars and some years adding a few thousand. I know that there are many birthdays, special events and other moments when cash will be gifted to him. I have already mentioned to friends and family that all cash gifts go to his stock portfolio and not for anything else. I hope that message will resonate with them. Lord knows enough toys and clothes will be coming his way regardless. It will indeed be interesting to see what a real long term dividend growth portfolio can look like with even modest amounts of fresh capital being added. After all, time is the real mojo here and baby DivHut has a lot of it. Looking back it will be interesting to see what his overall compounded growth rate will be in a couple decades.

      As always I appreciate your comment and enjoy your posts too. You are one of the few who invests solely in a taxable account and I felt compelled to mention your reasoning behind that decision which is similar to my reasoning for opening a taxable custodial account for baby DivHut.

  11. Hey Div Hut,
    This is an awesome idea. Set up a DGI portfolio for your kid. In 20 years or so, he will be way ahead of the pack to reach FI.
    It also sounds like a great opportunity to discuss in a later stage in their life the key money lessons they need to know.

    greetz

    AT
    ambertree recently posted…do I need to beat the market?My Profile

    • Hi ambertree,

      Anything I can do as a parent to get baby DivHut ahead of the investing pack I’ll gladly seek out. For his long term money, I think it’s best to buy into high quality dividend payers, reinvest and occasionally add fresh capital when it’s possible. I can’t help but think how amazing it would be if I had this same opportunity. Just imagine, being 20 and having twenty full years of dividend growth and compounding under your belt. Talk about giving that dividend snowball a chance to grow. Now imagine baby DivHut works till age 40 and continues to contribute to his dividend growth portfolio… now we’re talking about four full decades of growth. I really hope to instill these investing lessons at an early age so that he’ll grow up to be financially responsible. Thank you for stopping by and commenting.

  12. Hey Keith,

    great plan… and it brings back good memories for me, because the first post I ever wrote on my blog was about investing for my then 1 yr old son. We are lucky enough to have tax-free accounts here in England that children can access from age 18, so our son will not have to lose out to the taxman.

    I am not sure if you have any annual allowances for ‘unearned income’, but if you do, maybe it would be worth trying to shelter some of the investments? In the UK, you can invest in a tax-deferred pension account (equivalent of an IRA I guess) and the child has its own ‘unearned income’ allowance that can be deposited every year.

    Best of luck with the investments for baby DivHut, they look like a great selection. Of course, the benefit of a very long-term investing horizon is that you can pick up bargains from each sector that is tanking at the time, over the long term, you will then have some hefty gains.

    Cheers
    M from There’s Value recently posted…How to Retire Early – Not!My Profile

    • Hi M,

      I see that I’m not alone in setting up long term dividend growth portfolios for our children. Quite a few of the comments left here discuss the same topic. I guess that comes with the territory of being a dividend investor, you inevitably want the same for your kids.

      Over time, we’ll see how the portfolio and dividends grow and then discuss the potential for retirement account options for baby DivHut. Of course, I’d like to minimize tax implications whenever possible but by the same token don’t want too many restrictions placed on the cash. I’ll definitely seek out the advice of my tax man to see how to proceed. For now, baby DivHut’s account remains modest, generating a modest dividend income. Of course, in ten years that may be a different story altogether. Thank you for your well wishes and kind words. Long term horizon is the operative phrase for this portfolio. I appreciate your comment.

  13. Hi divhut,

    Great idea to start a dividendgrowth portfolio for baby Divhut. If he get’s old enough he will have a nice example infront of him of the power of compounding. Hopefully he will grasp the concept and be thankfull for it.

    If I ever get kids I will open a brokerage account for them on the day that they are born so the compounding can start as soon as possible.

    Cheers,
    Geblin
    Geblin recently posted…Three easy ways to select and compare dividend stocksMy Profile

    • Hi Geblin,

      Glad you are on board for starting a dividend growth portfolio for your own kid one day. I would suggest you enjoy the experience of being a new father though. I didn’t open an account for baby DivHut till he was about two months old. In any case, the plan is for me to teach him the power of investing long term and collecting and reinvesting dividends so he can see real world compounding in action and not just some textbook example that he may not relate to. Of course, once he is old enough I hope that he’ll continue on his own path towards FI and contribute to his dividend stocks for another twenty years. By the time he’ll be forty he would have four decades of compounding under his belt and hopefully have enough to live off. As always, I appreciate your comment.

    • Hi Tawcan,

      It’s great reading comments from other responsible parents out there. Congrats on setting up a dividend growth portfolio for Baby T. No doubt Baby T will have a nice portfolio generating an ever increasing passive income stream which is something we are all after. Thank you for stopping by and commenting.

  14. Little DH is one lucky kid to have a thoughtful parent:)

    In my case I waited until my son was 12 and used Dividend Growth as a math exercise for school. Once he was interested we opened an account and whatever he contributed I match dollar for dollar. At the end of each year I put together a list of stocks for him to choose, he then selects and has to tell me why he choose that particular stock. If he makes a mistake I show him where he went wrong on his selection and this becomes another teaching experience with using ratios, trending and to some extent how to interpret a company’s financials. That was three years ago and he now has $1700 in his account and makes $62 annually,
    Ken K recently posted…Some Good News For BP InvestorsMy Profile

    • Hi KK,

      Well, credit to Mrs. DivHut too who is fully on board a dividend investing plan for baby DivHut. Having a spouse on the same financial page as you is vital.

      Another comment of a financially responsible parent. I love it. I wish more parents taught the basics of money, debt, spending, income, investing and dividends. I think it’s great that you have this father son bonding time through stock investing. No doubt he gains valuable lessons as he grows and already earns a passive income stream which should only grow over time. Thank you for sharing your own long term investing story about your son and for starting him off an a very early age too.

  15. Let’s just say baby DH has a 22 years head start on a regular kids, who will start after college. On a average S&P yielding 10%/yr, $10K will double every 7.2 years, 22 years baby DH will have $80K to start his life with. Way over his peers! It’s the power of compounding.

    It’s great being the son of a prominent financial blogger. Your Dad would always be on the look out for you, kid!
    vivianne recently posted…UEFA EURO 2016 – A trip to FranceMy Profile

    • Hi vivianne,

      Your comment highlights what’s possible with time and compounding returns. Of course, even if returns average much less than 10% a year, baby DivHut will have a head start on his own path towards FI relative to many of his peers. I hope that with our jump start and his continued investing on his own for another twenty years or so, he’ll have approximately forty years worth of compounding returns and hopefully enough of a dividend income stream to live off indefinitely. Thank you for stopping by and commenting.

    • Hi divorcedff,

      It’s a shame that “life events” like a divorce can totally derail a retirement/saving/income plan. At least you have started on your own dividend journey towards FI and, as you stated, plan to leave a legacy for your kids once you are gone. That in itself is a great tribute. Thank you for sharing your thoughts.

  16. DH,
    That is awesome! Even if you only put a few large chunks of new cash in that account plus dividends, whether DRIP or not, you kid will likely have more at age 10 than most do at age 30. Excellent foresight. I’ve planned to do the same for my children, when I have them that is.
    – Gremlin
    Dividend Gremlin recently posted…Fall Mix PackMy Profile

    • Hi DG,

      Judging by most of the comments it seems that many parents and future parents will be creating a dividend growth portfolio for their offspring. That’s kind of refreshing to hear considering the sorry state of personal finances for most people out there. Starting at such a young age gives baby DivHut’s portfolio a lot of time to grow and compound which, as you stated, will allow for nice growth even if modest amounts of cash are added infrequently. As always, I appreciate your comment.

  17. DH,
    I really like the idea! If I’ll ever have kids, I will do the same.
    Imagine, they could do a job they really want and didn’t have to choose which job earns enough for living.
    What a great idea! And it’s essential to teach them the frugal living and saving from the beginning so they can continue building the nest egg. Hopefully, they’ll see the benefit and didn’t cash out 😉

    Thanks for your inspiration!
    DivRider
    DivRider recently posted…Monthly Update September 2015My Profile

    • Hi DR,

      If I do my job correctly, I would have instilled in baby DivHut the notion and power of compounding and the joys of earning a passive income. I think about a future where baby DivHut works till around age 40 all the while contributing to his portfolio which was started this year. I can’t even imagine the awesome effects of a forty year compounding portfolio would look like. As he grows I’ll definitely teach him the basics of owning stocks/businesses and that instead of an allowance he can consider a dividend from a company as his personal ATM. That should get any kid and adult excited. Thank you for commenting.

  18. DH,
    Congratulations, and this topic is close to my heart as well. I originally opened a 529 savings account for my 5 years young son when he was 2, put In a good chunk of money and invested in Vanguard funds that the plan offered. Then a year later, when I myself completely converted to DGI, light bulbs went in my head and stopped contributing to his 529, instead all our family money started flowing into DGI.

    However, I did not open a separate custodial account either. My thinking is, though I am currently investing in my account, ultimately it is all ours (and his) irrespective of whose name it is in. Our family savings compounding the same irrespective and reaping the same DG benefits. I understand, one can set up a small separate account in kids name to teach them investing and get them engaged early, which is what I plan to do when he is ready. But what I am trying to understand is – what real advantage there is to have a separate account for your kid when you already are investing the same money in DG stocks anyway? What am I missing?

    • Hi sriniv,

      Awesome job opening up a 529 account for you child at such a young age. My preference, as I see yours too, is investing in individual dividend growth stocks rather than funds or ETFs. Not that there’s anything wrong with those investment vehicles it’s just a preference and a goal of creating a passive income stream via dividends rather than just seeking capital appreciation.

      The reason I created a separate account for my son is because I wanted him to feel attached to his investments. Sure, Mrs. DivHut and I take care of him and provide for him and what’s ours is his, but I just think that seeing his own name and legally attached to those funds might make him feel closer to his holdings and perhaps take greater care and initiative of his portfolio once he is older. You aren’t missing anything really. No hidden benefit for doing this other than what I mentioned. Thank you for sharing your thoughts.

  19. I’m sure Baby DivHut will thank you in 20 something years. That’s amazing that you are taking care of this at such a young age. Good for you and Mrs. DivHut for recognizing the importance of this and helping your future generations get a head start. My mom did a similar thing for me, albeit she started when I was 10. But one of the unintended benefits was that it helped me recognize my interest in stocks and investing at a young age, which laid the groundwork for today and I’m sure our website. Hopefully you have an heir to the DivHut empire in the making and an eventual contributor!

    Bert
    Dividend Diplomats recently posted…Lanny’s September Income & Expense SummaryMy Profile

    • Hi DD,

      One thing that’s great about my financial situation is that Mrs. DivHut and I are on exactly the same page regarding saving and investing. When I mentioned I wanted to create a dividend growth portfolio for our baby she was 100% on board. As baby DivHut grows I’ll definitely be the one to teach him about investing as well as the benefits of dividends. As you stated, this can be a first step in a long legacy of passive income in our family for generations to come. Thank you for stopping by and commenting.

  20. I make savings an investments for my children education and also for my godson in dedicated accounts. I think these are the best way to help them doing want they want later on.

    The companies you look into adding are all good ones. Baby DivHut will be in business in a couple years! 😉

    Cheers,

    Mike
    DivGuy recently posted…Not Selling my House, Leaving AnywayMy Profile

    • Hi DG,

      Another responsible parent. I guess it’s no surprise that many of the DGI bloggers already save and invest for their children’s future or plan to when they eventually have kids. It will be interesting to see what a couple decades of compounding will do in terms of generating a passive income stream for baby DivHut. I do hope he’ll continue to contribute and not sell any of his assets. I want to teach him the importance not just of owning assets rather owning income producing assets and compare it to a fruit tree that continually provides indefinitely. As always, I appreciate your comment.

    • Hi Liveoffmydividends,

      Whatever the results will be, one thing is certain, he’ll be better off than me not doing anything. I see this as a real world example of what can be possible with modest sums of money and loads of time on potential dividend growth and returns. Thank you for commenting.

  21. What a great idea! I’m not married and don’t have kids yet but I was just thinking about this the other day! Ever since I started my dividend portfolio I was thinking that if my parents had set me one up I would be in a very good situation today! I’ll check back regularly for the updates and I too bought mostly the industrials sector as it has been hammered recently! Keep up the good work!
    Dividend Liberty recently posted…Walmart Plunges Nearly 10%My Profile

    • Hi DL,

      You and I both have had the same ‘what if my parents bought dividend growth stocks,’ etc. The reality is that we’d be a lot more ahead financially. The beauty of investing at such an early age is that you allow for a wonderful thing called compounding to take hold. Time is the greatest asset any investor could hope for and even modest amounts of money over a two decade period can compound and grow to an amazing sum relative to what was invested. Look forward to seeing you here more often. Thank you for commenting.

  22. DH,

    Timely article for us as my brother recently had a son. A few months back I bought him a share of BNS. I picked it up off of someone offering it on a personal finance forum for the share price + $20 to have it registered directly with the transfer agent.

    Now that it is registered through Computershare, “Baby GRB” is able to benefit from complete reinvestment of dividends into partial shares along with the option to submit $100 increments or more to for full investment (again, including partial shares) with zero commission fees.

    I also did it this way because I thought it was be cool to have the actual share certificate registered in his name to be framed and put in his room. As he grows up, it will be nice having something tangible to point at to represent his ownership in a high quality business that he’ll see out in the community as well.

    It’s a bit of an interesting fact to realize our offspring will probably be richer than we ever will with the compounding on their side in addition to proper stewardship and mentoring, eh?

    Take care and keep these updates going!
    – Ryan
    Get Rich Brothers recently posted…5 Things To Do In The MorningMy Profile

    • Hi GRB,

      What a great story you share about setting up your nephew with stock in BNS. I couldn’t think of a more financially responsible as well as educational tool for you to teach him. As I have commented elsewhere, time is the greatest ally of the young and any dividend growth investor. No doubt, in ten, twenty or thirty years time when baby GRB will be a young adult he’ll appreciate the foresight and gift of stock you have given.

      You bring up an interesting point that the next generation has a very good chance of being richer than we ever will with the time and compounding on their side. I joke to Mrs. DivHut that baby DivHut will be able to take care of us and that he’s our retirement plan 🙂 Thank you again for sharing this wonderful story. I’m happy any time someone invests in the next generation whether it’s via a 529, DRIP, custodial account or anything for that matter. Taking this proactive approach gives the next generation a better chance at a strong financial future.

    • Hi FJ,

      Another responsible parent who sets up their children with a growing account and understands the benefits of time in any investment. I really love reading these comments. It’s all about taking advantage of time and helping our kids in any way we can. Not sure about getting to six figures by the time he is 18, but you never know. I’ll contribute as much as I can each year but the beauty is that even moderate amounts of fresh capital can grow large simply because of compounding time. Thank you for stopping by and commenting.

    • Hi R2R,

      Thank you for your kind words. Your comment highlights my sentiment all along. What if more parents did something, anything, to invest in their kids’ financial future. No need for large sums of money. Even a modest amount can compound into a significant chunk and throw off decent dividends simply because of the lengthy time element involved. I will say that I have been pleasantly surprised by all the comments left as they clearly demonstrate that I’m not alone in investing for the next generation. As always, thank you for your comment.

    • Hi weenie,

      If I do my job correctly, teaching baby DivHut about investing and saving, I have a feeling he’ll totally understand how fortunate he is. It’s all about time when being a dividend growth investor. Much more so than money as time can make even small amounts of money grow quite large. Thank you for stopping by and commenting.

  23. As others have mentioned, yes there would be tax consequences but it sounds like you’ve thought all that through, and of course you can re-assess the implications of your decisions as you go along. Congrats on doing something amazing that few of us have had the discipline and forethought to do for our own children.

    Laura Beth

    • Hi LB,

      Thank you for your kind words about our actions for baby DivHut. The truth is that it doesn’t really matter if you open a custodial account, 529, invest in gold, silver, bonds, stocks, ROTH or whatever. The key point behind this exercise is simply to start investing for the long term and create a growing passive income stream that can compound for at least two decades. As you stated, nothing is set in stone and a 529 or other investment vehicle can always be opened up down the road should we feel it to be appropriate. Thank you for commenting.

    • Hi OBFW,

      Very well said. Some of the comments I have read, especially on Seeking Alpha, seem to focus on my decision to open a custodial account rather than a 529. I always felt that the most important aspect of this exercise is not where I put the money but simply that I just started an account that would allow for a lot of time to enable a huge amount of compound interest. That’s it. Simple. Time and compounding returns for two decades. I don’t care if it’s a 529 or custodial account and if it holds stocks, bonds, REITs or whatever. You sum up what I’m trying to do nicely. Thank you for stopping by and commenting.

    • Hi ACI,

      Sorry for this late reply. I just noticed I never commented back. Thank you for your kind words and support. No doubt baby DivHut has many, many years of compounding left and this real world ‘experiment’ will be interesting to see how it plays out. I’m curious to know what kind of passive income a portfolio like this can generate when left untouched to do its thing. Of course, I plan to add to the portfolio over the years but it’s nice to know that it can grow quite nicely even if another penny is not added.

  24. As a relatively new father myself, I’ve been considering this as well. All the same concerns – tax sheltered 529 vs custodial account dividend growth stocks vs DRIP in the child’s name. Not too worried about the FAFSA though, since I was dinged by my father’s assets even though I didn’t have any access to them (divorce) and was refused aid, and got through just fine.

    I’m leaning towards custodial account and a dividend portfolio, and trusting I can instill a proper financial understanding in my children before they obtain ownership of it.
    Jack recently posted…Buy CostCo Checks and Save Money (even if you’re not a member!)My Profile

    • Hi Jack,

      Congrats to your newly found fatherhood as well. I think the most important step when deciding on how/what to invest in has to be just starting. It’s very easy to fall into an ‘analysis paralysis’ as it’s human nature to try and optimize and maximize future returns. Of course, this can only be done in hindsight and retrospect. I did not want to over think the costs and benefits of a 529 versus a custodial account versus what to put into those accounts, individual stocks, funds, etc. I personally prefer simple custodial accounts as it has the benefit of a ‘no strings attached’ account. The funds may be withdrawn for any reason without penalties or usage terms. Of course, this is the beauty of personal finance as it’s ‘personal’ and everyone must find what investment style suits their specific current and future needs. For now, my plan is to continue with a regular custodial account and fill it with individual stocks that I personally am comfortable owning in my own portfolios. Thank you for commenting.

  25. Hi Div Hut

    Smart action to start a dividend portfolio for your kid. I first start with a fund saving plan with a fixed amount for the first 6 years and made 10K from 5K investment. Now I am turning this 10K in a Dividend portfolio with a focus on cash flow.

    Within 10 years I hope I can break this portfolio in two (as I have two kids) and this is their first cash factory.
    You can follow the dividend portfolio on http://www.dividendcake.com

    There are no Report Out yet on the progress of the portfolio as we started on 1st January 2017. I will post the progress of the dividend income throughout the year.

    Success with your 2017 Goals and al the best

    Dividend Cake

    • Hi DC,

      Looks like you are doing all the right things yourself for your own kids. I’m always happy to read about other parents setting up their kids with their own income producing portfolios. I started his portfolio with the intent of income from the beginning rather than capital appreciation. Look forward to following your progress in 2017 and beyond. Thank you for stopping by and commenting.

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