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This past September I had a major financial impact that occurred in my life when my son was born. Like most Dads I have since envisioned teaching my son about sports, girls, and of course dividend stocks. What's that? Most Dads don't teach their sons about dividends stocks? Well that's a shame, consider my son a leg up then.

Within a couple of days of receiving his SSN I had opened a 529 plan and custodial brokerage account and set up automatic deposits for each. As I contemplated what his first DRIP stock would be I realized I was approaching this choice as if it was my own portfolio. Or course I wanted to buy a solid dividend growth stock that we could reinvest dividends into for the next 60 years, but I also wanted this to be a great teaching tool for my son. Sure the ALFAC (AFL) duck is funny, but I'm not sure demonstrating DRIP investing to him with a supplemental insurance company was going to grab his attention and get him excited about investing (although I do think it would be a good dividend growth stock to own).

I then recalled a great piece of advice I got from a SeekingAlpha member (mbkelly75) on my very first post on SA.

My grandkids' (all 28 of them) first dividend stock was MCD. I explained that owning stock meant that they owned a VERY small piece of MCD restaurants. I gave them the amount of their dividends to spend in MCD on what ever they wanted - making sure that they KNEW that money came from MCD as their share of the company's profits. It actually came out of my pocket as their dividend was already reinvested, but I wanted them to understand the power of a dividend and exactly what it meant to them.

You would enjoy their cheering "I own that place" as they pass by every MCD that they see...

They stood by me from a very young age (2 years old for most of them) and watched me pick stocks that paid a dividend, watched me go over a company report or watched me just check and see if there is any news on a stock. Around 4 years old or so - they were actually able to understand enough about the process to start trying to make their own stock picks from ideas they got from watching what they and other people used.....

Think about that....

I thought this was a fantastic way to introduce dividend investing to a child. It also got me thinking about what other solid dividend growth stocks could be good additions. A stock that would still be around 60 years from now, has a history of growing its dividends annually, and one that a child or teenager would be excited to own and support.

  • McDonald's (MCD) - I don't think I could give a better explanation on how to get my son interested than mbkelly75 did above. And considering McDonald's french fries and chicken McNuggets are two of the most addictive substances known to children, this should be an easy sell.

Current dividend amount

$0.70

First dividend amount (split adjusted)

$0.00062

Dividend Growth rate - annualized

21.84%

  • Pepsico (PEP) - I don't like the idea of my son rationalizing drinking a Mountain Dew or eating a bag of Doritos to support his stock. But in typical father fashion, I do hope he thinks about supporting his stock when he's drinking a Gatorade after exhausting himself from playing some sort of sport (except maybe soccer).

Current dividend amount

$0.52

First dividend amount (split adjusted)

$0.0111

Growth rate - annualized

11.67%

  • Target (TGT) - Target has done a great job adding low-cost, fashionable clothing options to stores that appeal to the young. I imagine we'll be doing plenty of shopping at Target in the future. Telling my son he owns a small piece of such a large store might make the clothes shopping experience a little better for him.

Current dividend amount

$0.37

First dividend amount (split adjusted)

$0.0001

Dividend Growth rate - annualized

24.26%

  • Intel (INTC) - This is was my first purchase for my son's account and my largest dividend growth stock holding. He may have to get a little older to appreciate it, but hopefully his future mobile device will be powered by an Intel chip.

Current dividend amount

$0.21

First dividend amount (split adjusted)

$0.0031

Dividend Growth rate - annualized

24.73%

  • Yum Brands (YUM) - If owning MCD gets him excited when he's younger, YUM should do the same when he's a teenager. Most likely he would appreciate holding stock in YUM when he's in college, enjoying a late night meal at Taco Bell or cold Pizza Hut pizza for breakfast.

Current dividend amount

$0.29

First dividend amount (split adjusted)

$0.05

Dividend Growth rate - annualized

26.13%

  • Exxon Mobile (XOM) - Who knows how much a gallon of gas will cost in 16 years, or if we'll be using natural gas instead. Either way, there will still be an abundance of Exxon stations. It might make him feel a little better about paying so much to fill up his tank if he's supporting his stock when he does it.

Current dividend amount

$0.47

First dividend amount (split adjusted)

$0.03

Dividend Growth rate - annualized

7.01%

  • Kimberly-Clark (KMB) - My son doesn't know he wears Huggies diapers, but he should appreciate how they keep him nice and dry. As he gets older, he's going to also appreciate Cottonelle toilet paper on a daily basis. I just hope he never has to make a Depends run for his mom or I.

Current dividend amount

$0.70

First dividend amount (split adjusted)

$0.0725

Dividend Growth rate - annualized

8.84%

Those who understand dividend investing know that time is the most important factor in maximizing your wealth. Consider the following example, which is based on historic 11% annual return rate for dividend-paying stocks with dividends re-invested:

If you had invested a mere $50 per month -- that's $600 per year -- in dividend stocks from the age of 8 to 13, and re-invested those dividends, you will have accumulated over $1 million by the time you reach the age of 65.

It's a shame that most investors have wasted a lot of precious time before figuring out this important lesson. I'm going to make sure my son understands this and reaps the benefits of it from the very beginning. I'm currently putting $50/month into his custodial account. In the grand scheme of things this is a very small amount of money, but it is going to turn into a massive reward for him. Talk about a gift that keeps on giving, and giving, and giving...

Source: 7 Stocks For Your Kid's Retirement