Put This 7% Monthly Payer in the Christmas Stockings of the Youngsters in Your Life

Business Development Corporations (BDCs), Dividend Investing, Investing Strategies

Last week, one of my Dividend Hunter subscribers asked for a single stock recommendation that could be given as Christmas gifts to young recipients. I focus on a portfolio approach to income investing, so I had to think about which one of my recommended stocks would be both appropriate for teaching and a profitable investment as a young person’s first stock market investment.

After receiving the question, I pondered what makes a good stock to give to someone starting in the market. Here are the criteria that cross my mind.

I would like it to be a stock that would be a reliable investment for the long term. I would not want to recommend a stock where the company takes a wrong turn a few years.

Of course, since this is the Dividend Hunter, the stock needs to sport an attractive yield. I want a young investor to learn the powerful lessons of dividend reinvestment and dividend growth.

If possible, a monthly dividend investment adds an extra level of interest. The new investor can check their brokerage account every month and see a new dividend payment and discover how it helps the account continue to grow. Dividends provide the added benefit of showing up every month or quarter. Share prices can turn up or down at any time. Dividends show up on schedule.

While not related to a specific stock, automatic dividend reinvestment would propel the value of a dividend-paying investment left to compound for years or even decades. Think of someone 16 years old putting monthly dividends from a 7% yielding stock to compound. By his mid-50s, he would have an eight- to ten-fold increase in value and income stream.

I chose to recommend Main Street Capital (MAIN) for a potential stock share gift. Main Street is a Business Development Company (BDC) that has been around since 2008 and has never missed a dividend payment. I view it as the best-managed company in the BDC sector.

Like every higher yield stock, the Main Street share price suffered during the pandemic crash. Still, the company has not cut its dividend, and when the pandemic is behind us, the company will get back to growing the dividend. For reference, the current $0.205 monthly dividend is up 84% compared to the rate paid a decade ago.

I think gifting dividend stock shares to young people is a great idea. They will learn how markets, stocks, investing, and dividends work. If they leave the shares alone, at some point, even starting with a few shares will turn into a nice nest egg.

Have a great Christmas!

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