Investing has Social Consequences Whether you Like it or Not
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If you invest in dividend paying stocks like General Dynamics (GD) or Raytheon (RTN) you are contributing to genocide. Of course I am being overly dramatic, but a reader of the site named John made a very thought provoking comment on this post about investing in Exxon who was just added to the Dividend Aristocrats. He asked whether I considered the social consequences of my investing decisions when deciding to buy a stock. This is something I wrote about a couple of years ago and wanted to look at it again.
Historically, a number of the best dividend paying companies offered some of the best dividend yields around. Take Altria as an example. For years Altria sported a yield anywhere between 4% and 6%. The trouble was, as an investor you needed to be comfortable investing in a company that sold cigarettes and other tobacco products. The same thing can be said for companies such as Anheuser Busch who produces alcohol (i.e. drinking) related products (and is a Dividend Achiever) or CryptoLogic who are in the gambling business. Further evidence that investing in sin stocks can be seen by quickly looking at a chart comparing the S&P 500 and the Vice Mutual Fund, which as the name implies invests in stocks that are questionable to some. The chart clearly shows how well investing in these stocks has done:
Click to EnlargeThe rewards can be substantial for these stock over time especially if dividends are raised, but at what cost to society? I have my own views on investing in these stocks and don’t want to debate that here. Each investor needs to make this decision for themselves as it is very personal. What I do want to provide is some questions to ask yourself when deciding to buy any company, whether they are considered sin stocks or not.
1. If you buy this stock, will you be comfortable with the business they are in?
2. If you buy this stock, will you be proud to own it?
3. Are you comfortable with the negative social stigma the company may have?
4. Does investing in this stock go against your moral or spiritual beliefs?
Keep in mind that we are somewhat talking about getting emotions involved in investment decisions, which is rarely (never) a good idea. Be cautious about this and ensure you are considering all the facts before making your ultimate decision. However, you need to be comfortable with your decision and able to live with it so in this case I think it is ok to let your emotions creep in somewhat.
(Photo Credit: Helinton Oliveira)
16 Comments on this post
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Tyler said:
This is certainly a hot button issue and there are obviously two sides of the fence. I have not really let the social issue enter my investing decisions, but I can certainly see why one would elect to invest elsewhere if they have a strong belief against a certain product or industry.
December 22nd, 2007 at 12:53 pm -
Leading Edge Boomer said:
Very complicated. Some would not invest in Walmart because they do not like their labour practices.
On university campuses, some have questioned whether the university should accept money from individuals or companies in exchange for naming rights of a building or business school. Did the donor ever engage in unethical business practices or exploitation of workers in poorer countries? Some want know.
On the other hand the universities accept government money, some of it raised from casinos, liquor stores, tobacco taxes and corporate taxes from the same companies that some want to ban from campus. Where do you draw the line.In investing, I guess it is an individual decision where one draws the line. It is very difficult to be squeaky clean though. Even when you try to be.
December 22nd, 2007 at 2:57 pm -
Patrick said:
This is a tough one. Even just investing in something as “innocent” as index funds means you are likely investing in companies you find less than desirable. Does that mean you shouldn’t own the index fund?
Where do you make the distinction? Is it OK to own a stock if it is part of an index fund, but not own the actual individual stock in your portfolio? Tough call.
December 22nd, 2007 at 6:17 pm -
Bruce said:
I disagree about Raytheon and General Dynamics. These companies may actually help prevent genocide.
Historically, American arms companies have only helped END genocide (see Nazi Germany). The big genocide committers in our time have been Turkey, Germany, the Soviet Union, China, and Cambodia. As far as I know none of these were armed by American armament companies.
December 22nd, 2007 at 8:11 pm -
Eden said:
This is of course a long running argument, but I’ve never bought it. You don’t really OWN the companies you buy stock in. You are trading pieces of paper (just digital bits these days) to make a profit. Invest in Altria if it will make you money and give the proceeds to cancer research if that floats your boat. Like Dividend Guy said, mixing emotion with investing is not wise.
All that being said, there are so many investment opportunities out there that you could easily avoid investing in companies with businesses you don’t agree with- unless you own a broad market index fund. If you do that and make complaints then you are just being hypocritical.
December 23rd, 2007 at 7:54 am -
The Investor's Journal said:
Honestly I don’t think even consider it when I research companies. These companies are going to exist whether we invest in them or not. I suppose you can say that’s a bad attitude to have since if we all collectively didn’t invest in these companies they’d probably fail, but then another company would just pop up in it’s place.
Immoral companies will always exist (byproduct of human nature), not investing in them isn’t going to do much except cause you to miss out on some potentially good opportunities.
December 26th, 2007 at 11:29 am -
Silicon Prairie said:
When I started reading about personal finance and investing I thought I would be a great stock picker but decided on my limit: I would never invest in tobacco companies because they sell something that’s too dangerous. Fortunately before I had any money to invest I learned about the wonders of index funds - now I’m invested in them through the S&P 500! As long as the companies I don’t like are only a small percentage of the index I’ll just consider tham as a side effect.
If you start taking out companies you don’t like you’ll end up with millions of indexes. That said, the “vice” companies seem to do well… maybe when I have money to play around with individual stocks I should invest in some of the other once since I’m ok with Exxon and the like. I would like to build up a dividend area in my portfolio eventually - I think I’ll subscribe to your blog to see what I can learn.
January 5th, 2008 at 11:19 am -
Nancy (aka money coach) said:
looks like the debate has started, whether or not you wanted to!
Unlike @Eden, I actually do consider myself an “owner” of the company when I buy stock in it (if we shareholders aren’t the owners, than who is?). So, I choose companies that I can generally feel good about, recognizing it’s a complex world. And for the record, I’ve never made less than 12%/year, and often waaaaaay more, except for the REIT killer in Canada in ‘06, over about 10 years. If I can make those kind of returns selecting companies I feel reasonably proud to own, why would I choose to own companies that are at best dubious?January 7th, 2008 at 1:16 am -
Raymond said:
I’m personally putting all my investment money into ‘green stocks’.. I think socially responsible investing is profitable in more ways than one.
May 26th, 2008 at 10:24 pm -
john said:
Very Great list. Useful information to ably help people, thanks for sharing
June 14th, 2008 at 5:06 pm
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