Blissfully domestic has kids paint with watercolors all over a paper with a letter taped down on top, When they're done painting she removes the letter.
Get the instructions here:
http://blissfullydomestic.com/home-bliss/watercolor-initials/26795/
Twitchetts uses tiny letter stamps to outline her letters.
Get the instructions here:
http://twitchetts.com/2015/08/keepsake-toddler-craft.html/
Engineer mommy uses watercolors.
Get the instructions here: