Wouldn’t it be wonderful if your child finds out they have some meaningful savings when they’re in their teens? It would be savings that you have built for them through a solid stock portfolio. The earlier you start investing, the less you can put in and still end up with a hefty amount when your child starts going out with friends and needs pocket money to spend.
Visualize saving and investing $500 a year for an annual return of 7% since your child is born. By the time they’re 13, the investment portfolio would be worth $10,070.32. That is a lot of money for an average 13-year-old. It’ll be a great conversation starter to pass your financial knowledge to them at an early age!
Although the stock market trades close to its all-time high currently, a 7% return target is not aggressive at all. It can be attainable if you select stocks carefully. I have in mind stocks that are trading at good valuations and have businesses that are expected to grow for years to come.
Buy and hold a top stock from this industry
Quality utilities are easy to spot. The established ones pay very stable, growing dividends. One top utility you should consider buying for your child’s stock portfolio is Brookfield Infrastructure Partners (TSX:BIP.UN)(NYSE:BIP). Notably, in a taxable account, the corporation version, Brookfield Infrastructure Corp. (TSX:BIPC)(NYSE:BIPC), is a better buy for tax-reporting purposes. BIP has simply outperformed its peers since inception and in the last five years.
Since BIP was spun off from its parent company, it has increased its cash distribution every year. Specifically, it has increased its dividend for 12 consecutive years with a five-year dividend-growth rate of 8.8%. At writing, the stock yields 3.4%. Since the dividend stock is reasonably priced, it only needs a growth rate of 3.6% to reach our 7% target.
It’s more likely to exceed this expectation, though. Management is inclined to increase its dividend by 5-9% per year, which implies a mid-point growth rate of 7%.
The top-notch utility’s cash flows are highly sustainable with growth. About 90% is regulated or contracted and approximately 70% is indexed to inflation. Its cash flow is diversified globally and from different industries: electric and gas utilities, rail operations, toll roads, energy infrastructure, telecom towers, data centres, etc. The company also has an excellent track record as a value investor that enhances its businesses and potentially sell them at higher valuations when they mature.
This stock could continue to grow strongly
If you’re looking for a bigger kicker in your child’s portfolio, you might consider a tech stock like Converge Technology Solutions (TSX:CTS). While some high-growth stocks have been in meltdown mode, falling about 50% from their highs, Converge stock has essentially traded sideways in the second half of the year. And, in fact, the tech stock has doubled investors’ money year to date.
The company has been doing a superb job expanding its offerings, making acquisitions, and improving the margins of its acquisitions. The small-cap stock has a long growth runway, as it continues to expand in North America and is just getting started in Europe. Its future stock price performance will depend on how well it executes going forward. Right now, 12 analysts are calling for an upside of 26% over the next 12 months based on their average price target.
