Many governments are working to cure disease, halt climate change, provide safe working conditions and/or close gender and racial pay gaps. These issues threaten quality of life globally, and some businesses are working toward such goals, as well.
If you’d like to be a more socially responsible investor, you might seek companies rated highly for their environmental, social and governance, or ESG, behaviors.
What makes a good ESG stock? The company must align its operations to support programs benefiting the environment, local communities, employees and customers, as well as shareholders. Its performance history must be verifiable by ESG rating agencies. Solid financial performance is a primary theme of ESG investing, so ESG investors don’t have to forgo reliable returns.
Here are 10 companies you might research and consider. Each has a high MSCI ESG rating – and in recent years, each has reported robust annualized growth in net income and diluted earnings per share, orEPS: Nvidia (Nasdaq: NVDA), Microsoft (Nasdaq: MSFT), Best Buy (NYSE: BBY), Adobe (Nasdaq: ADBE), Pool Corp. (Nasdaq: POOL), Salesforce (NYSE: CRM), Cadence Design Systems (Nasdaq: CDNS), Intuit (Nasdaq: INTU), Idexx Laboratories (Nasdaq: IDXX) and Lam Research (Nasdaq: LRCX). (The Motley Fool owns shares in and/or has recommended all of these.)
Ask the Fool
Q. I keep hearing that it’s best to invest in stocks for the long term. But how long is that? – P.W., Windham, Maine
A. Aim to hang on to stocks you buy for at least several years, if not decades. Then, keep your focus many years ahead. As long as the company remains healthy and growing, with a rosy future, and as long as its stock price isn’t grossly overvalued, it’s probably best to hang on. Remember that those who made fortunes on stock in, say, Microsoft or Starbucks did so over many years, and didn’t sell after doubling their money.
It’s also worth noting that long-term capital gains (from assets held at least a year and a day) are generally taxed at a lower rate than short-term gains. (Don’t base investing decisions solely on taxes, though.)
Q. Can you explain what “high-yield” stocks are? Should I favor them? – C.N., Garden City, Idaho
A. Sure. High-yield stocks are ones that pay generous dividends in relation to their stock prices.
A company’s dividend yield is its current annual dividend amount divided by its stock’s current price. So, if Meteorite Insurance Inc. (ticker: HEDSUP) pays $4 per year in dividends (perhaps via quarterly $1 payments) and trades for $100 per share, its yield is 4% – 4 divided by 100 is 0.04, or 4%.
Dividend-paying stocks can be great investments, but don’t look for the highest yields you can find, as they can be tied to shaky companies whose shares have sunk. Instead, seek meaningful yields from healthy companies, perhaps checking before you buy to make sure the stock hasn’t fallen sharply over the past year due to lasting problems with the business.
My dumbest investment
My dumbest investment was in a Chinese solar company. I used to follow a site about alternative energy where the stock was recommended. It all turned out bad. – W.S., online
The Fool responds: Ask yourself some questions: What kind of reputation did this site have? Did it transparently report on the success or failure of its recommendations? Did it have a good long-term track record recommending stocks? Did you do your own research into the company – looking into how much cash and debt it had, whether its revenue and earnings were growing at a good clip or if it was even profitable? Did you learn about the competitive advantages (if any) that it had, and what the stock’s risks were? Answering questions like these can help us qualify or disqualify various stocks in which you’re considering investing.
It’s good to diversify your holdings, including some companies based outside the U.S. (or mutual funds with an international focus), but do so carefully, and consider the economic and political environment in which a candidate company operates. In China, for example, several business leaders have disappeared, and its government has occasionally issued decrees that have hurt various companies.
Remember that another way to invest internationally is via U.S. companies that derive much of their revenue abroad. Coca-Cola recently got just 36% of its revenue from North America.
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