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 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 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%.
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.
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%.
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 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 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 Value||Current Value||Annual Rate of Return|
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.
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.
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.