Raising two kids is the most fun I’ve ever had. I’m only 2 1/2 years into the adventure, but the experience of having kids far surpasses the fun I had in my youth and during the time I spent traveling the world. Watching our kids learn, grow, and develop their personalities is more entertaining than I ever imagined.
My son is nothing like me or my wife. Prior to his arrival, I thought he wouldn’t fall far from the apple tree. But instead his personality, interests and quirks surprise me all the time.
In the same light as my post about Santa’s dividend stock portfolio, I thought it would be fun to compile a list of companies that my son would choose if he were old enough to buy stocks, based on his curiosities and preferences.
What 2 1/2 year-old doesn’t like firetrucks? My son is no exception. He has much better hearing than I (thanks to too many evenings at the 9:30 Club back in the day), and can hear sirens far off in the distance. He gets excited and says, “Wee-oo wee-oo!”; that’s what he calls firetrucks and the color red in general. A firetruck is on his favorite pajamas, and he has a number of them lying around our house in multiple sizes. “Dad! Wee-oo wee-oo shoot water out!!!”, he said to me yesterday before nearly poking my eye out with his toy ladder.
If he were investing, perhaps he’d be a buyer of Oshkosh Corporation (OSK), makers of Pierce fire engines. Pierce has a complete line of engines, pumpers, tankers, aerials and rescue trucks serving the needs of fire departments. OSK also sells airport specific fire trucks in its impressive airport vehicle division. To the excitement of young boys everywhere, OSK manufactures a wide variety of garbage trucks, cement mixers, and tow trucks too. Every Monday morning our boy awakes to the sound of a recycle and garbage truck right outside his window.
OSK is currently trading at a trailing 12-month (TTM) PE ratio of 14.55, and yields 1.30% with a payout ratio of just 15%. The company is not a consistent dividend raiser. But for a company that sells such awesome machines, I don’t think my son would care much about the dividend growth rate (DGR).
My son chugs milk voraciously. When he hears that a meal is ready, he immediately stops what he’s doing and shouts “EAT!”. He then sprints to the refrigerator where his favorite blue sippy-cup is usually waiting full of delicious organic whole milk. If the milk isn’t there, watch out for a tantrum. Once he gets it out of the fridge (he must open the door and grab it, or else), he barely breathes until it’s gone. Then the meal may commence.
The WhiteWave Foods Company (WWAV) is an obvious choice for my boy, packagers of Horizon Organic milk. The company was spun off of Dean Foods (DF) in August 2012. DF still packages plenty of dairy products too, including this new disgusting orange cream flavored Halloween themed milk (see right) that will hopefully be discontinued by the time my son is more capable of asking for things.
While we like the Horizon brand, we tend to buy the store brand organic milk from Whole Foods (WFM) or Safeway because it’s much cheaper. Dad probably wouldn’t buy either WWAV or DF. I’d normally favor DF between the two because WWAV doesn’t pay a dividend while DF yields 1.80%. But the DF dividend streak is less than a year old and fairly spotty in the past, at best. I’m also not crazy about their balance sheet, negative growth, low margins, and the fact that they spun off their fastest growing segment. That’s WWAV, a high growth, high multiple company I’ll likely avoid.
We made a special trip to ride the DC Metro Rail recently and our son talked about it for a week afterwards. His Thomas the Tank Engine and Emily railcars are the two toys that he most vehemently refuses to share with his little sister. He found this crazy awesome TV show on Netflix called Dinosaur Train. Yep, dinosaurs that ride a train. In case you’re wondering, the smartest people in the world work at PBS making kids shows. All aboard! Trains may very well be his favorite mode of transportation.
Two train railcar companies would surely be in my son’s portfolio if he could buy stocks. The larger one, Trinity Industries (TRN) is a $7 billion company that manufacturers a full line of railcars to transport dry and wet cargo, gases, automobiles, grains, fuels, coal, and steel. They also produce highway products like guardrails and crash systems, various energy-related products, and have a solid inland barge business. TRN yields just 0.90% and has a payout ratio of 8%. Its TTM PE ratio is 12.47.
Another compelling train stock for my son is American Railcar Industries (ARII). This company is more focused on railcars, repairs and parts. The stock is up a whopping 89% in the past 52 weeks. With a strong balance sheet and recent strength in earnings growth, the company now yields 2.30% with a payout ratio of 28% and expected earnings growth of 15% over the next five years. At first glance this company is interesting and may warrant further research despite the recent run-up.
Doors and Potties
Ever since my son could crawl, he’s had this strange and zealous attraction to doors. When he was nine months old, he’d open and close the door to my office, over and over again until I moved him away or locked it. Never has he pinched his own finger (though he did get mine once). Now that he’s older, anytime he is outside and it’s time to come in, he must open the front door. If anyone else does, prepare for a breakdown. Once he recovers, he closes the door and reopens it himself. Sliding doors, swinging doors, french doors, you name it… he loves it. My Dad started calling him the Doorman on vacation this year because of his infatuation with a sliding glass door at our beach house.
Masco (MAS) manufactures the Milgard brand of windows and doors to go along with a wide variety of home improvement products such as kitchen cabinets, Behr paints and Delta plumping products, including their toilet line. The potty is a new object of interest for my boy, so MAS is a must own for him these days.
Unfortunately, the company had to cut its dividend by 69% to preserve capital in 2009. But back in May of this year, MAS increased its dividend for the first time in five years from an annual $0.30 to $0.36. The stock now yields 1.70% with a payout ratio of 39%. Prior to 2009, the company had a streak of increasing dividends back to at least 1983.
Our little toddler has a peculiar thing for socks. He insists on wearing them at all times of the day. We have hardwood floors and we think this started because he doesn’t like stepping on crumbs that he’s dropped all over the floor. The only time he doesn’t wear socks is during his bath and at the the pool. “No socks!” he declares before heading to our swim club.
One of the most well known makers of socks and underwear is Hanesbrands (HBI). This company, spun off from Sara Lee in 2006, is behind brands such as Champion, Playtex, and Wonderbra… ensuring he’ll want to hold this stock well into his teens. HBI has only been paying a dividend since May 2013, but has already given shareholders one dividend boost. Current TTM PE ratio is 31 while earnings are expected to grow at 14.67% over the next five years. The stock is up 71% over the past 365 days.
Lastly, combine doors and buttons and you get one of my son’s favorite mechanical treats. At just 16 months, we went to New York and stayed in a hotel. He wanted to do nothing but ride up and down the elevator for as long as we’d allow it. The hotel receptionists thought it was cute for a while, but by the end of the third day we could tell we needed to cut back. Any time we visit friends or family that live in a high rise, we partner him up with an adult and let him ride. Our library has an elevator too. It’s a convenient carrot on a stick to help get him interested in books.
The worlds largest elevator maker is Otis Elevator. The elevator business has consolidated over the past century leaving only a few major global players. Otis Elevator is a subsidiary of United Technologies (UTX), a stock I first wrote about after buying Parker Hannifin (PH). The more I look at this company the more I like it. Industrial conglomerates make for good dividend growth stocks. Think PH, Emerson Electric (EMR), and General Electric (GE). Valuation looks reasonable at 16.60 times TTM earnings and a forward PE of 14. UTX has a dividend growth streak of 20 years and a 10-year dividend growth rate (DGR) of 14.5%.
|Symbol||Price||TTM PE||Forward PE||Yield||Payout Ratio||Est. 5-yr Growth||52-wk Price Change|
Hopefully when my son is old enough, he and I will talk about investing like my Dad and I always have. He already has investments in his name through a 529 plan, and maybe I’ll open a few DRIPs for him in the coming years. I look forward to the day when my son and daughter are old enough to understand compound interest. The day I first comprehended the concept was a turning point in my life. Had I started investing back then, my portfolio would be much bigger than it is today!
Thanks for reading and sharing.
Do you own any of the stocks mentioned above? What stocks would your young kids buy? Comments welcome below.
Disclosure: The author is long PH, EMR, WFM. Stocks mentioned are for entertainment purposes only and do not constitute a recommendation to buy. Invest at your own discretion.