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Dividend reinvestment programs (DRIPs) offer investors a chance to begin investing with less money and often without additional transaction fees. This article will focus on Hasbro (HAS), a company that provides a DRIP program through Computershare that is completely fee free. I hope to demonstrate how this investment vehicle is uniquely appropriate for children through custodial accounts.

Hasbro closed Friday just 5% above its 52 week low. At current prices this company offers a dividend yield of over 4% and has a market cap of 4,270M compared with a trailing twelve month average revenue stream of 4,260M. That > 1% difference compares favorably with peers:

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Trailing averages offer conservative revenue estimates for these seasonal businesses, making me suspect HAS is currently trading at a discount to future annual revenue.

One of the features of a DRIP is its tendency to dollar cost average. That averaging manages to capture a long term appreciation in stock price, but will under perform a large enough one time investment over the same period. Because Hasbro's DRIP does not require an automatic recurring deposit an individual investor can minimize this averaging feature by limiting additional share purchases to times when a stock is within 10% of a 52 week low. In this way an individual can still take advantage of the low capital requirements DRIPs offer.

One common critique of DRIP investing is that it works against diversification. This is only half true. Many companies offer these plans and achieving diversification across the market is made easy by opening multiple DRIP accounts. This process is made easier when companies share a transfer agent. Here is a nice list of fee free direct investments and a list of transfer agents for those plans. Finding a few transfer agents to handle all your DRIP plans makes managing those plans easier. Thankfully more and more companies participate in plans like these, making diversification even easier.

The biggest drawback to DRIP investing is that dividends used to purchase stock remain taxable. For adults with other sources of income it can make more sense to open a retirement account that can defer taxation through a broker that will also waive any fees for automatic dividend reinvestment.

For children, a custodial account is often enough to avoid taxation. Assuming the child's only source of income is dividends, and that income is less than 950 dollars they should avoid having to file an individual federal income tax return. Other tax implications for custodial accounts are detailed here.

I have opened custodial accounts for my niece and nephew with P&G, and contribute to them annually. At today's prices, Hasbro offers a much better value and I intend to open a DRIP with HAS for them this year instead of making a deposit into their P&G accounts.

Children are in a unique position to take advantage of DRIPs. They have time to capture long term gains and allow reinvested dividends to supply them with income greater than their initial investment costs. Several Seeking Alpha authors have illustrated how this works. A great primer can be found here and an application for individuals of that resource is found here.

Wouldn't it be nice to walk the children in your life through the toy section of a store and explain to them how they are owners of the products they're consuming?

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HAS over the next 72 hours.

Source: Hasbro: Drips Are For Kids