The Positive Returns and Social Dividends Portfolio

This article is part of our Rising Star Portfolios series.

It's time to think positive! It's perfectly possible to aim for above-average returns and social dividends when investing, and it's a mistake to believe otherwise. Welcome to the Positive Returns and Social Dividends Portfolio.

Screening for the good, the bad, and the ugly
The past several years have been ugly for the marketplace. But despite all the doom and gloom, there's never been a better time to invest for the greater good and leave more soulless stocks behind.

You won't find shares of Lockheed Martin (NYSE: LMT  ) , Monsanto (NYSE: MON  ) , Goldman Sachs (NYSE: GS  ) , or BP (NYSE: BP  ) in this portfolio. If you don't know why, maybe you haven't been paying attention. What companies do -- in many senses of the word -- will be important here.

What you will find here are purpose-driven companies that aim to make a positive impact on the world around us.

SRI: Overshadowed no more
Several studies and data confirm that socially responsible investments can outperform the market over time. As of Dec. 31, 2009, the longest-running SRI index, the FTSE KLD 400, had generated a 9.51% average annualized return since its creation in 1990, versus an 8.66% return for the S&P 500. The Social Investment Forum also revealed that last year, nearly two-thirds of 160 SRI funds run by Forum member firms bested their benchmarks. On average, large-cap SRI funds outperformed the S&P by 6 percentage points in 2009.

I'm not the only one who's excited about this philosophical method of investing. The idea that social responsibility can boost long-term returns appears to be catching on in the most unexpected places.

A recent study by academics at the London Business School and Harvard Business School revealed that more sell-side Wall Street analysts are taking corporate social responsibility practices into consideration in their recommendations and ratings. "As time goes by, CSR strategies are perceived to be value-creating, potentially more legitimate, thus uncertainty about future cash flows and profitability is reduced and, analysts assess CSR initiatives more accurately," according to the authors.

Sounds like a pretty logical concept. What took those guys (and gals) so long?

The benefits of socializing
You probably already know that the socially responsible investing landscape can be a bit bumpy. Not everyone will agree what a socially responsible stock is to begin with. That'll be part of the fun and Foolishness of this portfolio.

Indeed, some picks could turn out to be controversial. For example, one could make the argument that Wal-Mart (NYSE: WMT  ) should be considered a socially responsible investment, since it provides cheap necessities to cash-strapped consumers, and has been making big headway on environmental and sustainability initiatives.

Then again, Wal-Mart has been long criticized for problems with how it treats its workers, and it's also renowned for competitiveness and price-cutting so aggressive that it has driven smaller businesses -- and occasionally its own suppliers -- out of business altogether.

In other words, sometimes there can be a massive debate on whether a stock is socially responsible or not. Bring it on! You'll be welcome to provide feedback on all "buy" recommendations. If you disagree that a buy recommendation is truly socially responsible, by all means leave your thoughts in the comment box. There's great social benefit in robust discussion, too.

Having heart in the marketplace
This portfolio is for those with heart, but not for the faint of heart. In other words, be prepared to be a kind investor, and above all, a patient one. This is a long-term portfolio in the true sense of the word. Focusing on quarter-by-quarter performance has sapped our economic strength. Here, we aim to give good, well-managed companies time to reap what they sow.

These may not always be the cheapest stocks on the block, either. Green Mountain Coffee Roasters (Nasdaq: GMCR  ) and Whole Foods Market (Nasdaq: WFMI  ) reside in the SRI spectrum, but don't often trade for what you could call value-stock prices on the face of things. At times, we may seem to be paying premium prices for our do-good stocks, but never fear. High-quality companies have a built-in competitive advantage over the long haul.

Last but not least, this portfolio doesn't only aim to shower you with positive returns from feel-good companies. It also means you won't have to feel like you need a shower after buying a stock. That seems like a pretty positive way to invest to me.

This article is part of our Rising Star Portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. Click here to see all of our Rising Star analysts (and their portfolios).

Green Mountain Coffee Roasters is a Motley Fool Rule Breakers recommendation. Whole Foods Market is a Motley Fool Stock Advisor selection. Motley Fool Options has recommended a synthetic long position on Monsanto. The Fool owns shares of Wal-Mart, which is a Motley Fool Inside Value pick. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax owns shares of Whole Foods Market. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (21)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 01, 2010, at 4:54 PM, lemoneater wrote:

    :) I'm rooting for you, Alyce! Go SRI investing!

  • Report this Comment On November 02, 2010, at 6:58 AM, TMFLomax wrote:

    Thanks lemoneater! I'm definitely excited about this and I'm glad you are too!

    Best, Alyce

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