Holiday season is coming up and what better can we give to your beloved one then some stocks for Christmas? Isn’t a dividend growth stock the ultimate gift that keeps on giving?
Forget about another pair of black socks, underwear or a bottle of perfume. That’s so 2020!
Hence, I would definitely sign-up for stocks as a Christmas gift.
In my opinion giving stocks for Christmas is one of those gifts which can be inspirational, educational and it of course makes you very popular 😉.
Now, there are several ways how you can do this and we’ll get to that later on in this article. But for now, let’s get started.
Best stocks as a Christmas gift For Children
I personally think that with Children we should stay very close to their passion and their own little imaginary world.
That’s why I would focus less on the current valuation, but rather on their imagination. In the end they will likely hold those shares for another decade, so there’s a lot of opportunity for those companies to grow into their valuation in case it’s needed.
Having said that, these are the 3 publicly listed companies that first came to mind and should be able to put a smile on their face.
1. the Walt Disney company
Walt Disney currently trades at a normalized forward P/E of 36 and a P/FCF of 43, so they are by no means cheap. But we all know the reason for this: large investments in Disney+ are a huge drain on their current cash flows and at the same time their parks, resorts and cruise lines have yet to recover to pre-pandemic occupancy numbers.
If you believe in Disney’s future prospects, then the company could still be attractive at the current share price. The capital expenditures related to Disney+ are not required forever. At the same time parks and resorts are expected to recover once the pandemic comes to its end.
Unfortunately Disney stopped paying a dividend at the start of the pandemic, so if we want to give a dividend stock, then we need to look further.
I personally believe that shares from Apple are the ultimate Christmas gift for teenagers. 35% of upcoming teens in the US own an Apple Watch and 87% own an iPhone. That’s a hell of a market penetration!
So what better stock exists to teach teenagers the example of shareholder ownership in products that you love? Isn’t this the ultimate stock to own according to Peter Lynch’s philosophy?
And it’s actually not too expensive either right now. I would say that the shares are priced according to how their products are also priced: with a premium.
But that’s not to say that it’s very overvalued. I rather see it as a high quality stock which deserves premium pricing. They’ve seen a lot of growth across their product portfolio: i.e. iPhones, Watches, Mac, Services.
At the same time they are buying back a lot of shares on a continuous basis while still nurturing a strong balance sheet. As an example, they have reduced their share count by 36.3% since 2012 which is really a lot!
Just imagine how much the share buyback alone could contribute to an increase in wealth over the next decade?
Hence, that’s why I believe that Apple is one of those perfect stocks for Christmas and especially for teenagers.
You can buy some shares right now with a 28 P/E multiple or 25 P/FCF multiple. This comes with an 5 year average net income growth rate which is more than 21% and a current dividend yield of 0.55%.
Roblox is one of those new-tech stocks that many of us are unfamiliar with. I mean, you might have heard about it, but it’s not something we played with back in the nineties or eighties.
But oh boy, which kid between the age of 9 and 14 doesn’t know Roblox right now?
Just to help you out here, Roblox is an online gaming platform currently used by more than 115 million active users. Roblox is different compared to traditional gaming platforms like Microsoft xBox or PlayStation.
It differs from them, because it has more than 50 million games available in their environment and these are typically created by the community and for the community. In other words, it’s a great example of a 2-sided platform, but then focused on gaming (i.e. Facebook is also a 2-sided platform).
That’s why I truly believe that Roblox for our kids will have a similar emotional connection as Nintendo or Sega has for our generation.
Just know that the company is still making a loss, because it’s heavily investing in its future. Hence, regular P/E ratios don’t really make sense here to have a quick check on its valuation.
So let’s just look at the price-to-sales ratio which is a better litmus test for an early growth company.
In this case the company is expensive with a P/sales of 34.6 which is considered very high. On the other hand, they did grow their revenue by more than 100% over the last year, which is an astonishing result.
So all in all, I truly think that this is a very inspiring Christmas gift for kids.
I would just manage the expectations well regarding the risks associated to price appreciation potential.
Unfortunately it isn’t possible to buy shares in LEGO as it is a private company. Otherwise this would’ve been definitely in the top 3 stocks as a gift to kids for Christmas.
Best stocks as a Christmas gift for Adults
I believe that the story is a bit different when we want to buy adults some stocks for Christmas. In this case I assume that we want to be educational and encouraging them to start investing.
That’s why in my opinion the valuation is much more important here. The last thing you want them to observe is a falling stock price, because it might only confirm them that investing is dangerous.
On the other hand you may also want to show them the power of dividends and compounding. Hence, an exemplary dividend growth stock could also be one of your main considerations.
So baring this in mind, I believe that the following 3 stocks are really good examples of stocks to give for Christmas to adults.
1. Johnson and Johnson
Johnson & Johnson is the ultimate dividend king in the dividend growth investing community. It earns this trust due to it’s clockwise dividend growth in the last 50 years.
The predictability in earnings and dividend growth is unheard of and unlike anything you will find with in the stock market. This is why I can’t imagine any other stock to start with from an educational perspective.
At the same time the stock is not too expensive. You can currently get it for a 16 forward P/E which is considered an attractive valuation under the current market conditions.
It also spots a dividend yield of 2.65% with an average annualized historical growth of ~7%. This might look small, but over time the person receiving the stock might start to feel the impact of the compounding effect.
Johnson and Johnson announced to spin-off it’s consumer health business. I have shared my thoughts in the following video. Further more I have analyzed $JNJ a bit more in depth so that you can get a better understanding of the underlying business fundamentals and the current valuation of the stock.
Who doesn’t know Nestle? This Swiss juggernaut is one of the most successful consumer staples in the entire world and I see no reason why this will change anytime soon!
As an example, did you know that Nestle owns 29 billion dollar brands? Just think about brands like Nespresso, Nescafé, Kit Kat, Smarties, Nesquik, Stouffer’s, Vittel, and Maggi. At the same time it also owns a 23% stake in L’Oreal, which is another top-notch European dividend aristocrat with several billion dollar brands.
And it doesn’t stop there, because Nestle is also the number 1 European dividend king with a track record of 62 years dividend growth. If this isn’t consistency anymore, then I don’t know!
There’s just one catch though, because the current financial environment has pushed the stock to very lofty valuations.
At the moment Nestle trades for a 28 P/E which is historically very much for a company in the consumer staple sector. It neither has the year-over-year earnings growth to support such a multiple, but I guess it’s just the time we’re living in right now.
Last but not least, Nestle spots a dividend yield of 2.28% and I expect it to grow for many years to come.
Now this stock might be very controversial on this list, because many people believe that Microsoft is heavily overpriced right now.
But honestly, I’m not so sure about that. The company just keeps on hitting their numbers and I don’t see any end in sight right now unless a large financial crisis would hit us anytime soon. Yes, a share price of $330 is a lot and I have the company valued at ~$250 right now.
But on the other hand, that number has been moving up since last year when I valued it at about ~$190. The reason for that is accelerating growth numbers in many of their business units. Who knows if this is stopping anytime soon?
What I do believe is that Microsoft has one of the safest dividends in the world. A triple-A balance sheet and a low payout ratio definitely contribute to that thinking.
So who knows, maybe a printed stock certificate of Microsoft still fits somewhere nicely under a Christmas tree?
Trading212 could be a great broker to create an account in case the receiver hasn’t got one yet. It’s easy to use, allows investing in fractional shares and they can automate their investments by setting up a pie with a selection of stocks. You can create an account here and we would both get a free share up to a value of 100 Euro.
How to give stocks for Christmas
It might not sound obvious, but there are few ways you can give stocks for Christmas to your beloved ones. Let me discuss them in a brief manner with you.
1. Buy the shares and Transfer later
It might be the case that the person you would like to surprise with such a Christmas gift hasn’t got a brokerage account yet. In such a case you could buy the shares at your own brokerage account and transfer them to the receiver once the person has created an own account.
This means that you would be the official owner at first and you would transfer your ownership to someone else. However, this does come at a cost which is typically between 10 and 25 Euro based on your broker.
How does it work in practice?
1. The person creates a brokerage account
2. The person requests a transfer of the shares via their brokerage account from your account to theirs
3. You accept the transfer request on your end
4. Your broker will process the transfer request.
2. Create an account and buy the shares
I think that this scenario especially applies to your own kids, because depending on your bank you might be able to create an account for them.
But this is not always the case and that’s why we created an account on our wife’s name at DEGIRO which we use to build a portfolio for our children.
Either way, in this case you would just buy some shares directly on those brokerage accounts.
However, in the second case you will need to consider future tax implications (when the account isn’t on the kids name). This will differ per country, but there might be an official taxable event created once you’ll handover those shares to your kids in the future.
3. Use a professional service
I’m not aware of anything in Europe, but if you’re from the US, then you might consider a service like Give a Share.
They have a small selection of stocks you can give as a present. They will also handle all the processes for you and in some cases you will receive a real and traditional stock certificate.
There is a catch though, because it will come with quite some admin costs on top of the actual share price. As an example, you will pay ~250 USD for a single Disney share while it might be trading for ~150 USD per share.
Personally I don’t mind it, because it’s a gift and it comes with a nice certificate. At the same time a company deserves to make a small profit as well.
These are 3 practical options which are focused on real share ownership.
Of course, you can also decide to just give some money, but in that case you will need to trust that the person really buys some shares for it. Prices will also move in the meanwhile, so your money as a gift might even not be enough.
My plan is to buy shares for my kids and my cousins in the upcoming weeks. I will use the first option for my cousins with real transfer of shares from my account to their (future) account.
At the same time I will use a stock certificate template which I will print and place into a frame. I will digitally modify them to add the logo, the company name and a personal note so that they will have something tangible as well.
This way I can actually give them something into their hands.
Of course, they might not understand the concept of stock investing yet, so be assured, I will also add a small present which they really desire 😉
That’s it from my side. These are some stocks which came to mind when thinking about stocks to give for Christmas.
But I’m also very curious to hear from you!
What stocks would you consider and will you be doing something similar this year?