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The market has recovered somewhat from its recent correction.
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However, many promising dividend stocks remain well below their recent highs.
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Three in particular look like excellent buy-the-dip additions for my daughter’s portfolio.
While I don’t expect my daughter to become a stock-picking fanatic like me, I’ve enjoyed building a portfolio with her that is full of simple(ish) businesses that any elementary-aged kid might appreciate. Typically, we try to prioritize buying a new stock each year and have developed a portfolio that consists primarily of the following holdings:
A mixture of products she likes, understandable businesses, and brands she sees everywhere, these stocks present an easy way for me to point out just how many companies we come across in our daily lives.
Now, with the market continuing to tiptoe around “correction” territory, it’s as good a time as any to add to a couple of these stocks (and my daughter’s longest-held position) while they’re down between 19% and 48%. Here’s what makes these dividend stocks magnificent buys for any kid’s portfolio.
While railroads are complex operators thanks to their labyrinthine nature, I’d argue they’re also excellent investments for kids. First, they’re easy to spot “in the wild,” making them an easy on-ramp to talking about stocks or investing.
Furthermore, their business models are simple to grasp. Someone in this city wants stuff from that town over there, and they will move it there for the right price.
As for why we chose Union Pacific, it is the leading railroad operator around our neck of the woods, and it is very common to see. Equally important, however, is that Union Pacific’s return on invested capital (ROIC) remains best in class versus its peers.
This metric tells me that Union Pacific is the best at generating returns from the capital it deploys on new projects. Whether it builds siding extensions to accommodate longer trains, adds new mainlines, or upgrades terminals to allow for new capabilities such as intermodal container handling, the company produces outsize profits from these add-ons.
Best yet for my daughter, Union Pacific has raised its dividend for 18 years in a row, growing its payouts by 17% annually over the last decade. Currently, its 2.4% yield is well above its 10-year averages, yet only uses 48% of the company’s net income, so there is plenty of room for continued increases. In addition to these dividends, Union Pacific has been repurchasing its shares hand over fist, lowering its total share count by 31% since 2015.
