Creating a legacy – Kids’ Dividend Portfolio 2019 Update

If you are a long time reader, you may recall that back in 2014 we created a dividend portfolio for Baby T1.0 using ShareOwner. We put $12,000 in this investment account and picked 15 Canadian and US dividend stocks. The idea was simple – we wanted to take advantage of the power of compounding by fully reinvest all the dividend income. After the initial cash deposits, we didn’t plan to add any additional cash. It was our hope that this dividend portfolio would generate a good amount of passive income after decades of compounding. If so, it would set Baby T1.0 up nicely for becoming financially independent at a young age.

When Baby T2.0 was born in 2016, we thought about creating the same dividend portfolio with the same amount of money for her. By then we were very focused on growing our dividend portfolio and generating more dividend income to cover our expenses by our early 40’s. Therefore, rather than creating another dividend portfolio for Baby T2.0, we decided that the two kids would share one dividend portfolio.

Stocks in Kids’ Dividend Portfolio

When we constructed this dividend portfolio in 2014, we picked 8 US dividend stocks and 7 Canadian dividend stocks across different sectors. We wanted to pick solid companies that would continue to pay and grow dividends for many years to come. We focused on companies with products and services that people would use on a daily basis. The kids should, therefore, have some familiarities with these companies when they are older.

  • BlackRock Inc (BLK)
  • Walt Disney Co (DIS)
  • Enbridge (ENB.TO)
  • Fortis (FTS.TO)
  • General Mills (GIS)
  • Johnson & Johnson (JNJ)
  • Procter & Gamble (PG)
  • Qualcomm (QCOM)
  • Royal Bank (RY.TO)
  • Shaw Communications (SJR.B)
  • Suncor Energy (SU.TO)
  • Telus (T.TO)
  • TD Bank (TD.TO)
  • Visa (V)
  • Verizon (VZ)

After almost 5 years, we are pleased with the stock selection. Would I have changed any selections? Perhaps. With hindsight being 20/20, we probably would have picked Microsoft over Qualcomm, Starbucks over General Mills, and maybe picked another Canadian bank instead of a telecommunication company (For example, picking Bank of Montreal instead of Shaw Communications).

Also, because index ETFs offer instant diversification, perhaps we should have included one or two index ETFs like Vanguard ex-Canada All Cap (VXC.TO) and another all Canadian index ETF in this dividend portfolio. This is yet another hindsight being 20/20 scenario.

Kids’ Dividend Portfolio Performance

As mentioned, we originally contributed $12,000 for the portfolio. $80 was used as commissions (we did two separate purchases). For now, we have no plans to put more money into this portfolio. This, of course, can change in the future.

Most of the stocks are showing a modest amount of profit with Visa more than doubled in stock price. Four stocks, Enbridge, General Mills, Qualcomm, and Shaw Communcation, have slight negative returns.

Book ValueCurrent ValueAnnual Rate of Return

In about 5 years, we saw a total return of 42.8% or about 8.56% annually. In comparison, VCN.TO had an annual rate of return of 5.29% in the past 5 years and VTI had an annual rate of return of 10.42% in the past 5 years. Since this dividend portfolio consists of both Canadian and US dividend paying stocks, we cannot just compare to one particular index. If we average the returns of VCN.TO and VTI over the past 5 years, the average rate of return was 7.855%. At 8.56%, we are slightly above the average 5 year return of the two ETFs.

Given that the long term data for stock market return points to 7%, including dividends, I think an 8.56% rate of return has been pretty decent.

But 5 years is not enough time to judge whether the stock picks are profitable or not. It would be interesting to compare the rate of return in 5, 10, and 15 years after we go through a few bull and bear markets.

Minor complaint with ShareOwner

In case you’re wondering, the reason that we opened the account with ShareOwner, rather than the likes of TD and Questrade, was because we could enroll in full DRIP with ShareOwner. This meant that all the dividends received could be fully re-invested to buy fractional shares.

Well… almost fully re-invested.

Dividends received have not been fully re-invested because of the 15% non-residence withholding tax for US dividend stocks and currency conversion fees.

Unlike Questrade, ShareOwner does not offer holding both USD and CAD in the same account. So whenever we receive dividends in USD, the amount is converted to CAD. When the amount is used to purchase fractional shares, ShareOwner then converts the amount into USD.

This has been my only minor complaint with ShareOwner as we have spent over $1,000 in foreign exchange fees (i.e. not very forex efficient, forex is only charged upon purchase). However, I do think it is important to build the portfolio with some US dividend stocks to provide some geographical diversifications. I truly believe the geographical diversification outweighs the forex fees.

Note: As a reader has pointed out in the comment section. The “exchange” amount that I see on ShareOwner as part of the US DRIP is not a forex fee. It’s simply part of the overall DRIP transaction. So the $1,000 that we’ve paid that was listed as “exchange fee” is simply part of the overall DRIP cost.

Dividend Income

Below are the amount of dividend income and YOY growth percentages since this portfolio was created.

YearDividend IncomeYoY Growth

I was a little concerned with the below 10% YoY growth in 2017. Hence, it was nice to see the YoY growth to be above 10% in 2018. The annual dividend income totals listed above are the actual amount that we collected, excluding the 15% withholding tax and currency conversion fees.

Assuming no more cash is added to this portfolio and the dividend income is able to grow at 10% a year, this would mean that in 20 years, this dividend portfolio would generate almost $3,500 per year. The compounding and growth would continue and eventually generate over $23,000 per year in 40 years.

When both kids are a bit older, is it our goal to get them involved in tracking the dividends received. Once they start working part time, we plan to encourage them to add money in this portfolio to purchase more shares and increase the amount of passive income the portfolio can generate.

Once we become financially independent and our dividend income is much greater than our annual expenses, we probably will consider invest some of the extra dividends into kids’ dividend portfolio to help them grow their portfolio & dividend income.

Final Thoughts

I think it was a great idea that Mrs. T and I created a dividend portfolio for Baby T1.0 when he was less than 1-year-old. Gotta say thanks to Derek Foster as he suggested this idea in The Lazy Investor. It would have been great if we were able to create another dividend portfolio for Baby T2.0. But perhaps managing two portfolios on top of tracking and managing our own would have been too much work & effort.

Mrs. T and I believe the dividend income from kids’ dividend portfolio will become a great financial tool for both kids when they are young adults. As a parent, I believe it will be one of my responsibility to teach them to be financial responsible, so they don’t waste this powerful financial tool that we created for them.

Finally, in case you’re wondering, kids’ dividend portfolio was set up as an informal trust under my name, so I am currently paying taxes on dividends received. Luckily, dividend income is very tax efficient.

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38 thoughts on “Creating a legacy – Kids’ Dividend Portfolio 2019 Update”

  1. CSI is Canadian Shareowner Investments Inc. or They used to be called CSA – Canadian Shareowner Association but renamed when John Bart sold the company.
    There is no forex fee lost on drips. Do the math on the example I provided from my statement and check your own.. What you receive in USD after withholding is the exact amount you purchase in the drip. I don’t know how you can calculate exactly what you paid in forex fees when CSI does not publish that information.

    • Ah right, sorry I thought you were referring to another company.

      The forex fee does not show up on the statement. If you look under Trades -> Confirmations, you’ll see a line called “Exchange.” That’s the forex fee I was referring to. The statement counts the forex fee as part of the transaction. For example recently we DRIPed Verizon. On the statement it showed up as $10.86 charged. But if I looked at the trade confirmation it says $8.41 was gross and $2.45 was exchange (forex).

      But maybe I’m not understanding the “exchange” line correctly?

      • Ok I see what you are looking at but it is not a fee. The gross amount is what you received in USD after withholding and the $2.45 is what was added to the amount to convert it to CAD. The Trade Confirmation is very confusing because it does not indicate USD or CAD.
        It is better to go to the Transactions tab on where you can see line by line the dividend received, withholding tax paid and exchange rates listed in USD and CAD. If you total in CAD the dividend received and subtract the withholding, you will see that it totals $10.86. If you total in USD the dividend received and subtract the withholding, it will total $8.41.
        If I reverse the math, it will say for Verizon that you received $9.89 USD and paid $1.48 USD withholding tax. Since the last dividend for Verizon was $0.6025, it will also say you held 16.415 shares before the drip. It will also show you that the exchange rates on the money received and the money dripped is exactly the same. Be assured you aren’t losing anything to exchange fees. I hope I’m close with the math and that explains it clearly enough.

        • Ahh that makes more sense. Thank you for pointing this out. I guess I just naturally assume it’s forex b/c that’s what happens with Questrade. That’s great to know that we’re not losing any money over the exchange fee. I’ll update the post to reflect that. 🙂

  2. But as I pointed out, there are no losses due to exchange on dividends with CSI. You make it sound like you are paying exchange fees both ways every time you receive a US dividend and reinvest it, which is simply not true.

    Markup on exchange is typically 2.5-3%, so the fee you paid on your initial purchase could not have been anywhere near $1000. Seems like you are including the amount of exchange as a fee, which you would pay even if you were using Norbert’s gambit.

    • We are not using CSI. We are investing through ShareOwner.

      For example when we made 2 purchases of Blackrock shares, we paid ~$15 and ~$87 in forex fees. That’s the bulk of the forex fee we’ve paid. When we receive dividends, the dividends are converted from USD to CAD. When we DRIP more Blackrock shares, forex fee is charged to convert from CAD to USD.

  3. I’m a little lost on your comment on the FOREX. $1000 in FOREX at even 2.5% means you have received $40000 USD in dividends to date which is impossible. How do you know what the FOREX rate is for CSI? I haven’t seen it published anywhere. And you don’t pay FOREX on reinvested dividends anyways. If you check your statement, at whatever rate you receive when you receive your USD dividends, it is exchanged back at exactly the same rate when it reinvests your dividends. ie if you receive $1 USD – .15 withholding (which you can’t avoid regardless if your account is in USD or CDN) and then converts the $0.85 USD remaining into CAD then when the money is reinvested later it buys exactly $0.85 USD of that stock. For example I recently received $10.58 USD in dividends from AFLAC, minus $1.59 USD withholding = $8.99 USD which was converted into CAD @1.3025. But that rate is immaterial because it later bought 0.1816 shares of AFLAC @$49.515 per share, which works out to $8.99 USD. So no losses due to FOREX.

  4. Hi Bob

    we did the same thing with our son when he was born and he is now 9 years old, we live in denmark
    so we put $60,000 in this investment account and picked 11 danish and 2 US dividend stocks and we havent sold any off them sincce. our son portfolio include

    Danske Bank
    Nordea Bank
    Novo Nordisk
    Gn store nord



    Venlig Hilsen

  5. I don’t see where you are getting the CESG in your discussion or I missed it? That is a lot of money to be missing out on each year. What are your thoughts on this? I invested my kids into RESP plans to get the grant and benefited with very solid rates of return. I am in the withdrawal stage now for the kids as they go to University.

  6. Great idea. We should do that for our son too. Actually, he has about $400 from gifts and stuff. We’ll open a joint account for him later this year. Too busy right now…

  7. Thanks for Sharing Bob, my 10 year old has just started asking me about stocks, how they work, and how you buy a good one (haha). I was thinking about buying him a single share of something just as a life lesson? As far as kid portfolios, I currently keep it all co-mingled to make portfolio balancing easier but this post does have me thinking about when the right time is to break them off separate.

    • That would be a fabulous idea to buy a single share and get the share certificate so he can hang it on the wall. Buy a share of a company that produces things/services that he uses every day is a great idea.

  8. Wow that is such a cool idea. Returns look great to start. Parents of the year you are. Plus RESP. Will you adopt me. What are the RESP invested in?

  9. We did something similar with our kids, but we didn’t focus on specific dividend stocks. I believe in going with an index for the long-term. If they get to a point where they’ll need or use the income, then they can sell the index and buy specific income-producing securities.

    We’ve used mostly the money that the kids got for birthdays and such. At age 5 and 6 now, they don’t miss it and it’s done well.

    We might have been able to put more aside for them ourselves, but we’ve invested it in their education. Hopefully, that investment compounds just as much as one in the stock market would.

    • That’s a great idea that you are mostly using the money from birthdays and such. We might start doing that too. Like I said in the article, index funds makes sense, I kinda wish we did that when we set up this portfolio.

  10. Hey Bob,

    Just remember that any income or capital gains/losses are to be reported on the tax return of the contributing parent. I presume you will have mostly purchasing with low disposition frequency. I have an In Trust set up for my son.

    What I did though was create a separate bank account and ITF (in trust for) Investment Account (non-registered) in the name of your son (In Trust). Then I have the CTB deposited solely to the new bank account (whatever you want bank to mean) and then transfer the funds to the ITF investment account. Do not commingle other monies in this account; it is only to be CTB deposits made to this account. What that does is make any income earned attributable to the child, not any parent. At age 18 the account is no longer in trust. I also have slightly more aggressive stock plays in his account since he has a longer time horizon than I do and should be invested as such. My son had a $2.00 capital gain in 2017 and filed his first tax return. All accounts have his SIN number on them so there is a direct link between him and CRA. I am making sure to keep statements from the bank account and the investment accounts in case CRA one day says this is all my income, 18 years later and I should have claimed it. I will have all printouts for 18 years to show that the paper trail is only CTB benefits received.

    Given how much the CTB purchased investments can grow to over the years, the investment income I have not had to claim, and was earned tax fee by him until his investment and work income exceeded his basic tax exemption when he files his tax return, this is a free strategy every parent who receives CTB should do, presuming they actually don’t need the money for day to day child care expenses.


    Brian Vroomen

  11. very cool Bob and congrats on the returns.

    Those exchange fees really are brutal though. 200 a year? seems crazy to convert currencys twice in basically the same transaction.

    Why dont you open a usd based account and transfer the us stocks over there? those conversions would be driving me mad! haha

    anyways nice choices of stocks and great idea doing this for your kids.

    keep it up

    • The exchange fees were high when we initially purchased the 15 stocks. I guess the convert currency fee is mostly when we purchase more shares (i.e. DRIPing). Unfortunately, there’s no other brokers out there that would allow a USD based account and offer full DRIP. We don’t want to have to sign up with the different transfer agents and having to manage multiple accounts.

  12. It’s a great idea to buy stocks for the kids at early age. Hopefully they don’t get spoiled by dady’s portfolio. I’m pretty sure you gonna teach them how to earn and value money and how to put the money to work, instead of chasing the latest gadgets to impress classmates. Nowadays, young kids take money for granted and they are ready to spend to the last cent, not thinking about the future. Good luck with the portfolio. I’m positive that it will do very well in the next 20 years. Keep us updated every year 🙂

    • Hi German,

      Yup will have to teach them about money and how to be responsible with money for sure. Baby T1.0 is very much into giving gifts to other people right now, so definitely need to teach him about responsible gift giving. 🙂


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