I’ve loved the Disney company for as long as I can remember. I have fond memories growing up watching movies of our favorite characters. Now as a parent, I get to relive the experience through my children’s eyes. Disney’s intellectual property is truly multigenerational. I wonder if our kids will relive the same stories with our future grandchildren.
We wanted to start them off early in life investing and our first thought was choosing a Disney DRIP for our children.
I have never been to Disney World in Orlando but did go to Disneyland in California as a young child. I still remember that trip with fond memories, even though I was only six years old. Our four year old is approaching the age where he would have a great time in the theme park. We are still holding off on planning a trip until the younger son is a bit older. At 18 months, he would be stroller bound and we would be stuck with his nap schedule.
Disney is one of the most popular companies and most popular DRIP stocks out there and for good reason.
What is a DRIP and DSPP?
A DRIP account is a dividend reinvestment plan. A DSPP is a Direct Stock Purchase Plan. This is confusing because a DRIP can also exist within a DSPP. Essentially the DSPP is an account registered directly with the company issuing shares instead of a brokerage account with the shares being held in street name. The DRIP, is a checkbox you select within the DSPP that indicates that when a dividend is issued, instead of pocketing the cash you want to reinvest the proceeds back into more shares of the company. This is a great way to build a bigger stake in the company over time.
Reasons for purchasing stock
- I wanted to provide an example of long term stock holding with a company he was very familiar with. For this to work, I wanted to make sure he would understand how the company makes money with a product he used over his childhood.
- This money will be his to use how he pleases later in life. We envisioned this gift to help with a summer abroad in college or to help with a down payment for a house. (however If he is reading this he should continue to invest it!)
Our Strategy with gifting stock
- Select companies worthy of long term holding periods. Hopefully the holding period is forever.
- Each company should have a history with dividend growth.
- Each company should be easily understood. This means easy enough that I could explain it to a five year old.
- Pick one company at a time and fund the account until it reaches $5,000. Once it reaches $5,000 we will turn off the automatic investments and move to another company. Dividends will be reinvested until our children are old enough that they can decide how they want to use it.
- Make regular monthly investments and also make lump sum purchases with spare cash or when valuation is satisfactory.
Options to Purchase Disney DRIP for our Children
I debated how to purchase shares. The options I considered were
- Opening a brokerage account and purchasing shares in one account for each child.
- Registering with a transfer agent and purchasing shares on their behalf
- Setting up a trust and combining all assets and splitting 50/50 between children
The brokerage account is the easiest to get started and to maintain. However I decided against this. I prefer the old school style of investing directly in a company for learning purposes. He will get proxy statements mailed. His dividend statement will be mailed with the company logo on it. It seems more real when you see the documents in hand and have a certificate to show for it, even though Disney certificates aren’t real anymore.
I know this option isn’t the most environmentally efficient option, but I think these documents reinforce the lesson that he is invested in a real business. Not to mention the cost is lower over time with our $100 DSPP per month costing about $2 per trade. This is cheaper than most brokerage accounts although the initial set up was expensive around $20.
We purchased the shares the the Georgia Transfers to Minors Act and purchased it through the Broadridge transfer agent.
Lil TPM #1 Disney DRIP Performance
We started purchasing Disney for him exactly four months after his birth. At the time of writing this, a single Disney share is valued at $97.58. His 43.0342 shares are now worth $4199.28. I know this isn’t a life changing amount of money, but over the next fourteen years if we hold, I think he will be happy with the windfall when he rides off to college. I wish I would have had funds like this spilling off dividends into my beer fund when I started school.
To date we contributed $3,654.12. Disney used to pay an annual dividend, but in 2016 they changed the policy and now make two payments a year. In total he has collected $155.65.
His shares have appreciated $389.47.
He has done ok so far with this holding. Not fantastic, but satisfactory. Shares have retreated some over 2017.
His account is getting closer to the $5,000 limit. We are planning on selecting another company by the end of this year and I will be researching the next company to go into his portfolio soon.
The biggest challenge with this strategy is balancing the account values between kids. We are purchasing companies at different times and I may even select a completely different company when lil TPM #2 stock is fully funded. This could create a situation where their accounts are not the same when receive it. I think this is ok. When they are older, I want them to actively participate in the company selection process. Returns are not created equal. This is a valuable learning lesson.
Do you invest on your children’s behalf? What is your strategy for teaching them about investments?