Building a socially responsible dividend portfolio in 2011

By: ispeculatornew
Date posted: 01.06.2011 (7:00 am) | Write a Comment  (4 Comments)

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It’s always a challenge isn’t it? We hear about social investing, about making the world a better place but it’s easier said than done. Through our actions, we can make a big difference in the world and while one investor making “socially responsible” choices will have a small impact, grouped together they can have a much more significant one. It is the same as recycling isn’t it? One person recycling would have a very limited difference but the green movement is starting to have a very real impact not only on the environment but on how businesses are being run.

Of course, the primary goal of investing is making good returns. Just as the primary goals of making income are to save and spend it. But many of us still take time to make charitable donations in order to have a positive impact in the world. So my question to you is: Will you take the opportunity of the New Year to make your passive income portfolio a more socially responsible one?

There are an infinite number of ways to get this done and even the definition of socially responsible investing (SRI) is debatable. The definition from is that “SRI investors encourage corporations to improve their practices on environmental, social, and governance issues“. Please note that this is different from ethical investing. How so? I do think that an oil company can be a good socially responsible investing for example if it can provide more sustainable and favorable business means than its competitors from an environment and social point of view.

What I did was take components of the S&P500 that were included in socially responsible investing indexes such as the Dow Jones sustainability indexes. That left me with about 100 names. From those, I took out all of the names that paid less than 2% of annual dividend yield which left me with exactly 50 names. Then, it becomes about selecting good dividend names and I did that using the 20 things that I look for in dividend stocks. I removed stocks that had a payout ratio over 50% or that had dividend growth under 5% for the last 5 years. How many names are left? 19! And many familiar names are left of course such as Pepsi (PEP), part of my 4 stocks picks for 2011, H&R Block (HRB) which came out as a top dividend financial stock, Entergy (ETR), one of the big dividend growth stories among others.

My final cut will be taking out stocks that have a debt to capital ratio over 50% which leaves me with 16 names that on the surface seem to be socially responsible and good dividend payers. Doing good in the world while investing, is it possible? I would love to hear your thoughts about this:

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  1. Comment by Sustainable PF — January 6, 2011 @ 7:49 am

    This is the theme of our personal finances!
    While the following companies may not meet your specific criteria we like:
    Now, you’ve brought up the socially responsible investing indexes. These indices use the “best” of in industry and can hardly be called “socially responsible”.
    Take a look at our food production and distribution systems and tell us McDonald’s is SR.
    Is Pepsi still filling landfills with it’s plastic bottles?
    Does Campbell soup pour millions of tons of sodium into us yearly?
    Have PG and CL abandoned, 100%, inhumane testing of their products on animals?
    The medical industry is hardly known for doing things the “right” way.

    Now that rant over, I will say these particular companies are working hard at SPECIFIC parts of their business (and marketing!) to appear more socially responsible, which is good, however, these actions do not erase their continued un-socially responsible actions.

    That’s why we like EEI, and environmental consulting company that works w/ these big guys and governments alike to help them clean up their act. Or MY which creates wind turbines out of China to help produce renewable energy. Or up here in Canada TA which is a massive producer of electricity via water and wind power. These types of companies seem a lot more socially responsible to me than the ones who shift millions of dollars into SR/Green campaigns.

  2. Comment by Jessica07 — January 6, 2011 @ 6:04 pm

    Thanks for the list! I’m going to jump on four of those! 🙂

  3. Comment by IS — January 9, 2011 @ 12:10 pm

    @Sustainable PF – No doubt, it’s not a perfect solution, far from it, but it is still a way of encouraging companies to do more, don’t you think?

  4. Comment by Sustainable PF — January 10, 2011 @ 7:16 am

    @IS It is better than NOTHING, agreed. However, when doing such things is to increase marketing it becomes a double edged sword.
    I think SR is just a new pressure these companies have to shell out money on in order to create a perception they are “responsible” and to mask their naughty little (or massive) deeds. If they get into these indices they can point to this accomplishment and say “hey look at us!” which is a marketing ploy. Put as little money into SR stuff as possible to get into a SR index and then gloat. The real way these companies could improve is to work on their existing black eyes instead of trying to help out on things that to date haven’t even been on their radar.

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