Creating a legacy – Kids’ Dividend Portfolio Update

Back in 2014 we created a dividend portfolio for Baby T1.0. The idea was simple – we wanted to take advantage the power of compounding by fully reinvest all the dividend income. We hope this dividend portfolio will generate a good amount of passive income after decades of compounding. If so, it will set Baby T1.0 up nicely for becoming financially independent at a young age.

Since 2014 a lot have happened. Baby T2.0 was born, we became even more focused on our dividend portfolio, and we found ourselves constantly running after both kids.

We originally planned to set aside $12,000, the same amount of money we set aside for Baby T1.0’s dividend portfolio, to create a dividend portfolio for Baby T2.0 as well. As mentioned, we have been focusing on our dividend portfolio and trying to generate more dividend income to hit our financially independent goal around 2026. Therefore, we decided to not to create a dividend portfolio for Baby T2.0.

Instead, Mrs. T and I agreed the dividend portfolio that we created using ShareOwner would be for both Baby T1.0 and Baby T2.0, split equally in the future. The portfolio is there to help them becoming financially independent when they are adults themselves.

 

Dividend Stock Selections

To recap, we put in $12,000 in the dividend portfolio for the kids and selected 15 dividend growth companies.

 

BlackRock Inc (BLK) 
BlackRock Inc is the company behind iShares ETF’s. A lot of people are buying iShare ETF’s for their passive index investing portfolios. So owning BLK is a great way to profit from the recent ETF craze. Paying dividend since 2003, BlackRock has a 10 year annualized dividend growth rate of 18.5%.

Walt Disney Co (DIS)
Every kid loves Disney because the theme parks and the entertaining movies. Disney has done quite well the last few years and has increased its dividend at a 10 year annualized growth rate of 18.8%.

Enbridge (ENB)
Enbridge is a major oil & gas pipeline company in North America. Paying dividend since 1990, Enbrige has a strong dividend growth history with a 10 year annualized growth rate of 13.9%.

Fortis (FTS)
Fortis is one of the Canadian dividend aristocrats, having increased dividend for 43 straight years. This is a company that every Canadian dividend growth investor should hold in their portfolio.

General Mills (GIS)
Kids love cereals so it makes sense to pick General Mills as one of the stocks to own for our kids’ dividend portfolio. GIS has been paying uninterrupted dividend for almost 120 years. GIS has managed to raise dividend payout for 14 straight years with a 10 year annualized dividend growth rate of 10.4%.

Johnson & Johnson (JNJ)
Johnson & Johnson is yet another company that every dividend investor should hold in their portfolio due to the long history of dividend increases. JNJ has increased its dividend for 55 consecutive years with a 10 year annualized dividend growth rate of 8%.

Procter & Gamble (PG)
Just like JNJ, Procter & Gamble is a company that every dividend investor should hold in their portfolio considering PG has increased dividend for 61 years consecutively with a 10 year annualized dividend growth rate of 8.2%.

Qualcomm (QCOM)
Smartphones is becoming a big part of our daily lives. Qualcomm has benefited from the smartphone revolution. Qualcomm stock price has struggled a bit the last few years but I think it will recover. QCOM is loaded with cash and should be able to continue raising its dividend payout for the foreseeable future.

Royal Bank (RY)
Royal Bank has paid dividends since 1870 and has raised its dividend for 6 straight years. The Canadian banking business is quite stable so the kids should benefit from holding Royal Bank in their portfolio.

Shaw Communication (SJR.B)
Shaw provides internet and cable services in Canada. This is a very stable business with not a whole lot of surprises. Shaw Communications is also planning to get into wireless business too. This new business sector should increase their subscription base and increase their bottom line.

Suncor Energy (SU)
Since we are based in Canada, I wanted to have a Canadian oil company in kids’ dividend portfolio for diversification. Suncor has a strong 10 year annualized dividend growth rate of 22.7% and should continue to raise its dividend payout.

Telus (T)
Out of all 3 Canadian wireless carriers, I believe Telus has the highest future growth potential. Telus has paid dividends since 1999 and has a 10 year annualized dividend growth rate of 11.9%.

TD Bank
We picked TD because it is one of the largest Canadian banks. We are also familiar with TD because we bank with TD. TD has paid dividends since 1857. Similar to Royal Bank, it has a long dividend growth history with a 10 year annualized dividend growth of 10.6%.

Visa (V)
Visa has been making money left, right, and centre and will only make more money moving forward with more and more people using credit cards. Credit cards are not going away and will certainly become an even stronger part of our daily lives. Visa started paying dividend in 2008 and has a 5 year annualized dividend growth rate of 28.4%.

Verizon (VZ)
Verizon provides wireless voice and data services in the US. Verizon is one of the biggest cellphone providers in the US and has paid dividend since 1984 with a 10 year annualized dividend growth rate of 3.4%. The dividend growth rate is the lowest of all of the dividend stocks selected but I think it’s OK as VZ has a high initial dividend yield with a stable business.

 

Kids’ Dividend Portfolio Performance

We contributed $12,000 for this portfolio. $80 was used for commissions (two purchases in total). We currently have no plans to put more money into this portfolio, but this may change in the future.

Book ValueCurrent ValueAnnual Rate of Return
$11,920.00$14,617.287.215%

In less than 3 years, we are seeing an annual rate of return of about 7.215%. VTI had an annual rate of return of about 8.5% in the same period while VCN had an average annual rate of return of 2.11% in the past 3 years. Since this portfolio is consisted of both Canadian and US dividend paying stocks, we cannot just compare to one particular index.

Considering the long-term stock return rate is about 7% annually, we are roughly in the average return ballpark.

Having said all that, we do need to take the annual rate of return with a grain of salt since the sample size is pretty small. It would be interesting to see the portfolio performance after a few bull and bear markets.

 

Dividend Income Performance

As you can see from below, the dividend income for our kid’s dividend portfolio is growing nicely. The values are all in CAD.

Note, the 2017 dividend income is an estimate based on the current dividend payout of each company, converted to CAD using the current USD to CAD exchange rate.

YearDividend Income
201422.47
2015398.78
2016426.89
2017506.83*

It is our goal that 15 companies will continue to raise their dividend payout. We would be very happy if the overall organic dividend growth rate stats above 10% for the next 2 or 3 decades.

 

Final Thoughts

Looking back, it was an excellent idea to create a dividend portfolio when Baby T1.0 was less than 1-year-old. It would have been great if we were able to create another dividend portfolio for Baby T2.0. But having a combined portfolio for both kids is better than none at all.

The 15 companies that we selected are a combination of high yield, low dividend growth and low yield, high dividend growth. I probably would estimate that 80% of the companies fall under the low yield, high dividend growth group. Since we will not touch this dividend portfolio for the next few decades, by 2037 or later, hopefully the portfolio will be generating significant amount of passive income for the kids each year. Who knows, maybe the dividend income would be sufficient to cover their post-secondary education cost. 🙂

For now, this portfolio will stay on auto-pilot with 100% of the dividend income reinvested.

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45 Comments

  • Reply
    DivHut
    August 23, 2017 at 9:52 am

    Great update and inspiring to see you setting up your kid for a brighter financial future. I do the same with baby DivHut and started when we was born in ’15. All dividend stocks, all reinvesting automatically. Babies, children, even teens, can take advantage of their greatest asset, time. Can you imagine the compounding effects of a dividend portfolio after 40, or 50 years! Great names in the mix. Look forward to future updates.

    • Reply
      Tawcan
      August 23, 2017 at 2:13 pm

      Thanks Keith. It’s awesome that you did the same thing for baby DivHut. Kids for sure have the greatest asset on their side. As parents, it’s important that we take advantage of this asset for them.

      • Reply
        fbgcai
        August 23, 2017 at 7:38 pm

        I have a personal example/experiment using a bit of BCE which I’ve held for 50+ years – started with 5 shares and have done doing but DRIP over time – now there are 290+ shares – IRR > 8.8% – even beats my house (in one of the hot (cooling:) markets) by almost 1.5 % (over equal times) – too bad I didn’t have a big bunch of stocks invested early on ): –
        – your kids’ portfolio looks great – well done !

        • Reply
          Tawcan
          August 24, 2017 at 1:17 pm

          Oh man that’s totally awesome. Crazy returns over time that’s for sure.

  • Reply
    Mrs. Adventure Rich
    August 23, 2017 at 11:13 am

    What a great way to help your children pursue financial independence. When do you plan to begin granting access/allow them to pull from the account?

    • Reply
      Tawcan
      August 23, 2017 at 2:14 pm

      That’s something we haven’t figured it out yet. Maybe when they graduate from university or when they enter the working world? It’s something Mrs. T and I will have to figure out later.

  • Reply
    Ms. Frugal Asian Finance
    August 23, 2017 at 11:14 am

    You guys are such great parents! Our son is 2.5, and we have no dividend or education fund. I’m not proud of that either. We’ve been channeling most of our disposable income into our mortgage payment. Mr. FAF has a new job now after 6 years of staying in school, so we will need to up our kids’ fund game asap. Oh and retirement too >_<

    • Reply
      Tawcan
      August 23, 2017 at 2:15 pm

      While taking care of the kids is important, I think it’s more important to focus on your own finance. Once that’s taken care of, you can then look at your son’s. After all, your son isn’t going to retire any time soon. 🙂

  • Reply
    Personal Alpha Investments
    August 23, 2017 at 11:47 am

    Great post!
    Building a legacy is something I can relate with and understand.
    Question though, what made you primarily select only stocks? I mean if I were to play devils advocate, shouldn’t having a low cost growth ETF allocation of 10-20 percent like Vanguard, take care of the uncertainities in a better way than a pure stock portfolio??

    I mean the only drawback I see is if there was a major market correction or something. Your thoughts?
    Cheers,
    PAI

    • Reply
      Tawcan
      August 23, 2017 at 2:16 pm

      Very good question! I guess when we created the portfolio we were focused on DGI rather than the hybrid approach. Another thing is that ShareOwner has somewhat limited Canadian ETF selections (IMO). If we decide to put in some money in this portfolio (we might, TBD), maybe we’ll add 1 or 2 index ETFs and just DRIP the distributions.

  • Reply
    Personal Alpha Investments
    August 23, 2017 at 2:32 pm

    Ya I mean I know the ETF selections in here is pretty limited when considering quality and low cost.
    But do check out some of the Vanguard ones offered in US. There is some good returns in some of them. The risk would be minimized as it is an ETF to begin with..

    • Reply
      Tawcan
      August 23, 2017 at 4:36 pm

      A quick look here – https://investor.vanguard.com/etf/list?assetclass=stk#/etf/asset-class/month-end-returns probably go with either VTI for US. Can’t decide on a Canadian ETF as I’m a bit biased toward Vanguard products (i.e. ShareOwner doesn’t offer Vanguard ETFs). Maybe we’ll put a few thousand dollars in the kids’ dividend portfolio later and buy an ETF or two. Very good point that you brought up.

      • Reply
        Personal Alpha Investments
        August 23, 2017 at 7:28 pm

        Hey it was all you.
        Thoughts are useless if they aren’t put into action.
        I am glad to add my 1% to this whole thing.
        Your blog essentially does the same. 🙂

  • Reply
    Mr. Tako
    August 23, 2017 at 2:55 pm

    Cool idea, and a great way to plan for your kids’ future!

    • Reply
      Tawcan
      August 23, 2017 at 4:37 pm

      You should start one for your boys. 🙂

  • Reply
    Turning Point Money
    August 23, 2017 at 4:41 pm

    This is great. We do a similar thing. For each of our two kids we opened two DRIP’s with Disney to start. We will fund them until they reach 5k and then move on to a different company. Each kid has a certificate hanging in their room. They just like the silly pictures. One day they will realize what it means.
    Next up, maybe Hershey.

    • Reply
      Tawcan
      August 24, 2017 at 1:15 pm

      That’s totally awesome. Having the certificate hanging in their room is totally awesome. 🙂

  • Reply
    Geoff
    August 23, 2017 at 6:35 pm

    Is this an RESP? Or is that set up separately?

    • Reply
      Tawcan
      August 24, 2017 at 1:16 pm

      It’s set up separately. RESP only has a much shorter timeline so it’s not meant to utilized for this kind of purpose.

  • Reply
    Dividend Diplomats
    August 23, 2017 at 8:02 pm

    Tawcan –

    First, I love this, so wonderful and am excited to do this one day. Secondly, sharing it amongst the two is smart and also fun in and of itself, Equal, one could say. Lastly – I would own each one of those stocks you mentioned above, so seems to be in good shape! Love seeing the growth here as well, and again, excited to do this one day.

    -Lanny

    • Reply
      Tawcan
      August 24, 2017 at 1:17 pm

      Hi Lanny,

      Definitely something to start when you have kids. Utilize the biggest asset they have.

  • Reply
    Amber tree
    August 23, 2017 at 10:21 pm

    Thx for the update.

    Otis generous to build already now a portfolio for the kids. We do something similar, with monthly contributions. It is for them when they are mature adults.

    • Reply
      Tawcan
      August 24, 2017 at 1:18 pm

      That’s perfect you’re doing something similar with monthly contributions. They’ll thank you later. 🙂

  • Reply
    Nick
    August 24, 2017 at 2:50 am

    Is the portfolio in the kids name or yours? I have twins that I have been putting 5k a year into a taxable wealthfront acct for two years. Been debating moving it into their names versus my own for tax reasons. Ideally this will help pay for college but who knows of they will need it, want it, or go to college.

    • Reply
      Tawcan
      August 24, 2017 at 1:19 pm

      It’s an in-trust so technically the portfolio is under my name. We can transfer the portfolio under both of their names once they are adults.

  • Reply
    AllIncomeStream
    August 24, 2017 at 9:51 pm

    Thank you for the update. We also have a separate account for kids investing in dividend stocks. All money that kids get as present from us, relatives and friends we put in that account.

    • Reply
      Tawcan
      August 25, 2017 at 10:01 am

      That’s totally awesome, your kids will thank you later.

  • Reply
    Sarah De Diego
    August 25, 2017 at 4:54 am

    Dear Tawcan,

    We debated doing this, however, as I understand it, until our kids are 18 (ours are 7), my husband and/or I would have had to PERSONALLY claim the income so instead we:

    1. Invested the money in our TFSA, RRSP and/or Non-registered accounts and claimed the income ourselves,
    2. Invested in an RESP (under both of our kids names) that will grow tax free and when withdrawn will be taxed in their name.

    Personally, I think we put too much into our kids RESP account but the government matching and grants were very enticing. If they don’t use it, we don’t/won’t have enough money in our RRSPs to offset the income. Anyways, that’s a ways off now.

    How do you handle any tax implications on your kids dividend income? Am I incorrect in my assumptions?

    As always, thanks for raising discussions around topics that are of great interest to me.

    Besos Sarah.

    • Reply
      Tawcan
      August 25, 2017 at 10:03 am

      I think your approach makes sense. We have RESP for both kids too so this dividend portfolio for them is separately of RESP.

      The dividend portfolio is technically under my name (it’s an informal trust), so I have to file tax under my name.

    • Reply
      May
      August 25, 2017 at 11:35 am

      Why do you think you put too much into RESP? I always feel RESP alone won’t be enough even if the kids just go to Canadian Universities. In case the kids want to go to a top US university, then it will be even shorter.

  • Reply
    May
    August 25, 2017 at 11:31 am

    I am curious that you just opened an account under your name, but just make the purpose of this account as the legacy for your kids? It’s not really a in-trust account, right?

    One way to transfer the fund under the kids’ name is that after they turn 18, open TFSA accounts for them and transfer the fund gradually into it.

    I was thinking to open TFSA accounts for my kids after they turn 18 and invest my own money as a gift for the kids’ future. I like your idea and plan to open a similar account at ShareOwner. I plan not to do it right now, but waiting for the market to pull back as almost everybody thinks the market due to a crush although nobody knows when that would happen.

    I hope I got this idea ten years ago. My daughter is 9 years old so there is not too many years for the portfolio to go. But better late than never, right? 亡羊补牢,未为晚矣。Do not know if you can read Chinese, LOL.

    • Reply
      Tawcan
      August 25, 2017 at 1:23 pm

      It’s opened as an informal trust. So it’s technically under my name but with kids’ names associated to it.

      Yes we definitely will explore the TFSA route later…. just if we do that we’d have to pay income tax for the portion transferred to TFSA. We’ll see which makes more sense when that comes.

      On market pull back… everyone’s been expecting a market pullback for the last 3 or 4 years but the market continue to go up. You might be missing out a lot of compounding by sitting on the side line.

      • Reply
        May
        August 25, 2017 at 3:48 pm

        I am not sitting on the side line, but just keep 10-15% cash to wait for better investment opportunity. I will use part of this cash to open a legacy investment account for the kids.

        • Reply
          Tawcan
          August 25, 2017 at 9:11 pm

          That makes sense. 10-15% cash on the sideline to wait for entry opportunity is a great idea.

      • Reply
        Vito
        August 25, 2017 at 7:05 pm

        I was wondering if you considered using Questrade instead of ShareOwner since I know you do invest with Questrade as well?

        Also, with respect to setting up the stocks with reinvested DRIPs, I assume the informal trust account is a non-registered account, so I’m wondering what your thoughts are with respect to the DRIP tax implications, since DRIPs in a non-registered account are notoriously more complicated when having to calculate the ACB.

        • Reply
          Tawcan
          August 25, 2017 at 9:15 pm

          We went with ShareOwner because ShareOwner can do full DRIP, meaning you can purchase partial share. Questrade only supports synthetic DRIP so you can only purchase full share.

          Since we don’t own that many shares per each stock, the dividend received is not enough for full share. That’s why we went with ShareOwner instead of Questrade.

          Yes you need to calculate the ACB for non-registered account already but it’s really not all that complicated if you DRIP eligible dividend stocks. It is very complicated if you start DRIPing things like REITs or income trusts in non-registered account.

          • Vito
            August 28, 2017 at 9:34 am

            I understand, make sense then to go with Shareowner if they support fractional shares. Do you tend to use services like adjustedcostbase.ca or just calculate the ACB yourself?

          • Tawcan
            August 28, 2017 at 10:56 am

            I just calculate the ACB myself.

          • Vito
            August 28, 2017 at 12:26 pm

            Not sure this would be a lot to ask, but may you consider writing an article showing examples how calculate the ACB? Either with and/or without DRIPs. I haven’t had the need to calculate it since I’ve never once sold a share (aside from Norbert’s Gambit) in my non-registered account, and I’ve watched and read articles but found those confusing, hoping to get an article that I can finally read that simplifies the process. I’m also aware of adjustcostbase.ca and according to Dan Bortolloti from CCP, he’s used it with his clients and said its good. Apparently ACB.ca offers both free and paid ($50/year) accounts, but I’m not sure what the differences are.

            Anyway, just a thought! Thanks!

    • Reply
      Sarah De Diego
      August 26, 2017 at 8:05 am

      Dear May,

      I’m worried about the financial implications if they don’t go to university.

      Our contributions are after tax dollars and if we have to withdraw it in our own name, we will lose the grant money, pay penalties and 50% (?) tax on growth (and it’s grown substantially, over $90,000, a great problem, I know). My husband will be over 71 (when my kids are 18) and even though he has RRSP room, he won’t be able to contribute and I’ve been a homemaker for 12 years and have very little room. I wish that we had kept the money and put it into our non/registered accounts. We could be generating “tax-free” eligible dividends and still saving money “for them” every year with no worries about their future scholastic pursuits (or lack thereof).

      In addition, when we started contributing in 2009 (and maxing out for both kids), we didn’t know that we would be FI/RE-ish in seven years. Now I look at that money and think, it sure would be nice as an extra buffer to our savings. Note that I haven’t figured out (in my head yet) how to deaccumulate so I’m always thinking about saving. Need to figure that out.

      Having said all that, I understand that the Government is very liberal with what is considered “educational” so I’m sure our kids will use the money to their benefit.

      Thanks for asking and letting me talk things out in my own mind 🙂

      Besos Sarah.

      • Reply
        May
        August 26, 2017 at 8:26 am

        Thanks for the explanation. Congrats on FI and such a successful RESP account. I never thought my kids will not go to universities. My only concern is which one to go. But you are right, you never know which way they choose to go.

        I am in same boat with you that I had kids quite late. Hopefully I will be in the same boat with you regarding to FI too.

  • Reply
    Vito
    August 25, 2017 at 7:07 pm

    Just curious, did you decide to split the $12K evenly among the different stocks, or did you prefer to lean more one way over another? Thanks! 🙂

    • Reply
      Tawcan
      August 25, 2017 at 9:16 pm

      $12k was distributed evenly among the 15 stocks. That’s way easier than picking which one to invest more money. 🙂

  • Reply
    Financial Samurai
    August 27, 2017 at 2:09 pm

    It’s a great journey to start now. We have the 529 College Savings plan in the US which is tax free growth, but after tax contribution.

    • Reply
      Tawcan
      August 28, 2017 at 10:55 am

      Thanks Sam. Yeah we have something similar called RESP here in Canada. This portfolio is not part of the RESP.

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