My daughter is turning two this year.
At her age pretty much everything becomes obsolete quickly. She gets bored with most toys within a matter of weeks and her clothes don’t fit for more than a few months.
I wanted to get her something for her birthday that I knew would be useful for years to come. So I decided to buy some dividend stock in her name.
I think it’s common for parents to want to save money to pay for their child’s college education, but that’s not my goal.
I’m hoping to gift my daughter a passive, cash flowing asset when she turns 18. Even if it’s earning only $100/month, that can make the difference between eating and not eating when you’re a young adult.
I had some specific requirements for the type of investment I want to gift her– it’s needs to be:
- Something that will have regular cash flow, with little to no work
- Held in my name until until she comes of age, at which point she will take full control
- Have no restrictions on what she can use the money for
- Require less that $500 up front with the ability to invest more each year
Although my wife and I don’t actively invest in the stock market ourselves, I decided on purchasing a dividend paying stock. Ultimately it checked all the boxes on my list and was very easy to get started.
Here’s what I did.
1. Open A Bank Account
My first step was to open a savings account in my daughter’s name and deposit some money.
This means the payouts will have somewhere to go. I can also pay any taxes due at the end of the year out of this account.
I just sent an email to my bank and told them what I was doing. They walked me through the setup and had me sign the relevant paperwork.
2. Open A Broker Account
There are a few types of broker accounts that a parent can open for their minor children.
All of them are advertised as education accounts. Because I’m not intending the dividend payouts to be used for college, this was a problem. I want the money available for living expenses like food, rent or transportation.
I only found one account type I could be open for a minor that didn’t have any requirements to use the money for education.
UTMA/UGMA accounts are relatively normal accounts opened on behalf of a minor.
There are 2 rules are for this type of account:
- Decisions must be made in the best interest of the minor who will assume ownership of the account.
- You must give full control of the account to the minor when they reach the appropriate age.
This was exactly what I wanted!
So I chose my broker, went to their website, signed up as a new user and created a UTMA/UGMA account. I simply followed the steps on their website.
3. Connect The Bank And Broker Accounts
The broker needs some money in order to buy stocks on my daughter’s behalf.
So I just entered in the banking information for the savings account I opened for her and put in an amount to transfer to the broker.
There were a few steps for verification, but after about a week the money was in the brokerage account.
4. Do Some Research
I already knew I wanted to buy a dividend paying stock because I want to build this into something that can provide regular cash flow to my daughter in the future with very little work.
So I did what anyone would do. I took to Google.
I found TradingView’s stock screener and started filtering in various ways to find dividend yielding stocks in different industries.
As I mentioned before, I’m no stock expert– so I was looking one of two things.
- A long established company that I knew and understood or
- A utility company that wasn’t reliant on fossil fuels
Basically, I wanted the stock I bought to be as risk free as possible while still offering reasonable dividends.
Identify some companies
After spending time looking through the available publicly traded companies I narrowed my list to these three companies.
I think we all know and understand Microsoft and it’s hard to imagine them falling off the map anytime soon. I would consider this a very low risk company.
The only knock is that the dividend yields were below 2%, which is lower than I would like.
Ameren is the natural gas utility provider in my area, so I have familiarity with them. They are an established utility provider and they don’t deal much in fossil fuels– so I felt that this was a pretty safe investment.
Also, the dividend yields have been around 3%, which I am much happier with.
As a web developer I’ve used Oracle products for many years and I know they are an integral part of the current programming landscape. This investment is very similar to Microsoft in that it’s safe and the dividends are a bit low.
5. Buy The Stock
Then it was time to actually purchase the stock I wanted. I decided to go with Ameren.
You just navigate to the area where trades are completed and set up a limit order to specify the price you are willing to buy the stock for. The broker will automatically buy when it finds a someone willing to sell for that price.
It didn’t take long for the transaction to go through and the new stock shares were in the account.
The process of buying dividend stocks in my daughter’s name for her second birthday was relatively straight forward. I think it took about two weeks from start to finish.
I’m looking forward to purchasing more dividend paying stocks for her third birthday!