It’s that time of year when children gather around the kitchen table, pad and pencil in hand, to write their letters to Santa. And while everyone wants to please the little ones and avoid sad faces on Christmas Day, we might also be asking ourselves: “Do they really need another Lego set or another American Girl doll?”
My children would answer with absolute certainty; Of course we do! As an aside, my son has actually asked to have one of the rooms in our house turned into a dedicated Lego room! My other son is converting our home into a fishing equipment store.
While I certainly indulge my children by giving them the gifts they ask for, I also let their grandparents, aunts and uncles know that cash is always welcome, to help them grow their investment porfolios.
This is CAIM’s fourth year promoting the idea of stocks as gifts. And here are the criteria we follow to make the best choices:
1. Choose a company that has products your child can relate to. For example, Proctor and Gamble (PG) sells lots of everyday household items, everything from toothpaste to batteries.
2. Your company should have a history of paying dividends. And dividends should be reinvested as they are paid to buy more shares over time. Many of the companies we recommend have a history of increasing their dividend over time, allowing the investor to buy more shares. This compounding effect can have a tremendous impact on the total return of the investment.
3. Buy companies that are attractively priced based upon the company’s fundamentals. We favor companies with low levels of debt and high levels of cash flow, because they are better poised to withstand market downturns and have the financial flexibility to grow their business and their dividends.
Holiday List 2013
Qualcomm (QCOM, $72.96, 1.9% dividend yield). Remember the Dick Tracy watch from the old cartoons? Well, Qualcomm makes the Toq watch http://toq.qualcomm.com/product/features. Now you can have your phone, watch, music etc. on your wrist! What teenager would not find this cool. Qualcomm is a tech company that manufactures parts for smart devices. Couple that with a dividend that increased 40% this year, and earnings expected to grow around 17% a year, and you have a company with the ability to offer shareholders attractive returns.
VF Corporation (VFC, $232.10, 1.8% dividend yield). Wrangler jeans, North Face outerwear, Splendid clothing, Timberland boots – I could go on and on about all the fabulous brands this company manufactures. Known for offering top quality leading brands at affordable prices, their products are highly sought after by a wide demographic. In October of this year, the company increased their dividend 20% (they have almost $6 a share in free cash flow) and announced a 4 for 1 stock split, which will take place for shareholders who own the stock as of market close on December 10, 2013. A well-run, steady company with expected long term earnings growth of 12% and dividend growth of 10%.
Caterpillar Inc. (CAT, $82.88, 2.9%). A very attractively valued stock with a management committed to lowering their debt and increasing the dividend. While it has been a tough environment for companies that sell industrial equipment to mining companies, the company still managed to increase their dividend 15%. The company will recover with the anticipation of a turn around in the global economy.