As they say, youth is wasted on the young. In terms of investing, that means the younger you are, the more time you’ll have to grow your nest egg. There’s no secret to it. The earlier you start investing, the more money you’ll have later on.
And you know who has the most time to benefit from this phenomenon? Our kids and grandkids.
With decades of compounding, dividend growth and stock market gains ahead of them, our kids have the potential to be tomorrow’s millionaires-with relatively little leg work required. And it’s never been easier to start them off right.
It’s incredible easy to open a Custodial account (UGMA or UTMA), Educational Savings (ESA) or even an IRA account at any brokerage firm. All it takes is a few clicks of a mouse and some starting capital, but it’s not enough to just hand them some money.
The key is to get kids actually interested in saving and investing, and the best way to do that is buy “kid-friendly” stocks that they know and love. By creating a kid-friendly portfolio, you’ll keep them entertained by the process.
As for the returns, some of the best stocks around happen to cater to the younger set. Here’s InvestorPlace’s four stocks to buy for a kid-friendly portfolio:
Stocks to Buy for a Kid-Friendly Portfolio #1: Walt Disney Co (NYSE:DIS)
It’s almost a given that the “House of Mouse” would be on stocks to buy list for kids, but the truth is the Walt Disney Co (NYSE:DIS) is a great stock for just about anybody.
Walt Disney’s rich portfolio of television and radio networks/stations, movie studios, characters and theme parks has made it the juggernaut of the entertainment space — both here in the U.S. and abroad. After all, we’re talking about Mickey Mouse here.
That’s made DIS into a cash flow and profits king.
Walt Disney is finally starting to return that cash back to shareholders. DIS recently increased its dividend payout by a whopping 34%, which follows some big-time increases over the last two years.
Meanwhile, Walt Disney has been producing free-cash flows that have been well-over what it spends on dividends. The entertainment firm’s payout ratio is only about 25%.
Those FCFs and profits should keep increasing with Disney’s recent acquisitions of Lucasfilm Ltd. (Star Wars) and Marvel Studios. Add in its recent string of animated movie hits, and you have a recipe for a great kid-friendly stock.
Shares of DIS can be had for a forward price-to-earnings ratio of 19 — which isn’t so expensive given Walt Disney’s growth profile.
Stocks to Buy for a Kid-Friendly Portfolio #2: Hasbro, Inc. (NASDAQ:HAS)
When it comes to toy stocks to buy, Mattel, Inc. (NASDAQ:MAT) has traditionally been the favorite to own. However, rival Hasbro, Inc. (NASDAQ:HAS) could be the better choice.
That will help HAS on the sales and cash flow fronts for the future, which is something MAT is struggling with since losing the DIS deals. Analyst’s now estimate that Mattel with have to cut its dividend by about 40%.
Meanwhile, over at HAS things are going pretty swimmingly. While other toy makers have struggled with sales, HAS has performed quite well as its stable of top brands continue to be big hits with the kiddies.
For the critical Christmas and holiday shopping months, Hasbro managed to report a 7% sales gain and a 4% jump in adjusted profits. Those profits should keep humming along over the long term as HAS continues to innovate and secure top deals with media firms and character owners.
Add in Hasbro’s 3% dividend and forward P/E of 15, HAS stock could be a great pick for a child’s portfolio.
Stocks to Buy for a Kid-Friendly Portfolio #3: PepsiCo, Inc. (NYSE:PEP)
Let’s face facts — no matter how many gluten-free organic snacks you buy, kids like to eat junk. And perhaps the biggest slinger of soft drinks, potato chips and snack foods is PepsiCo, Inc. (NYSE:PEP).
PEP owns a roster of global beverage and snack brands — with Pepsi, Aquafina, Tropicana, Frito Lay, Gatorade and Quaker Oats generating each over a $1 billion in sales for the firm.
That dominance continues to rack-up big sales growth internationally and here in the U.S. for PEP.
Back in 2005, Pepsi was doing about $32 billion in revenue. Today, that number is closer to $66 billion — that’s an annualized growth rate of around 9%. Meanwhile, PEP has managed to increase operating income by about 6% in that time.
That also has made Pepsi a dividend machine. As fellow InvestorPlace contributor John Kilhefner has pointed out, PEP has increased its dividend over the last 42 years and has paid out more than $60 billion in dividends and buybacks over the past decade.
When it comes to making a kid-friendly portfolio, one of the best stocks to buy has to Pepsi for the long haul.
Stocks to Buy for a Kid-Friendly Portfolio #4: Nike Inc (NYSE:NKE)
While clothing trends change all the time, athletic gear and sneaker manufacturer Nike Inc (NYSE:NKE) continues to be cool with every passing generation. Every kid knows what that swoosh means.
As a result, Nike leads in most of the categories in which it operates and has only a few serious competitors in sports and athletic lifestyle wear.
That dominance continues to showcase itself in NKE’s earnings growth and dividend prowess. In fact, during the latest quarter, Nike was able to shrug-off the effects of the rising dollar due great sales growth.
If you’re looking at firm that can handle the ups and downs of a global business cycle, NKE is one of the top stocks to buy for a kid’s portfolio.
You get cool factor and profits.
And according to most projections, NKE should be able to keep growing those profits at around 12% a year over the long haul. That growth is coming from not only rising sales but also from continued innovation among its various products lines.
At a P/E of 28, NKE stock isn’t dirt cheap, but over multi-decade timeline, today’s price could a huge bargain for Nike shares.