Investing in Responsible Companies is good practice for all investors. And emphasis on investing in companies with responsible characteristics is a trend that’s starting to gain steam.
In this short blog post we’ll look at the different faces of investing in responsible companies. And by the end of reading this brief article you’ll have a strong understanding of what to look for when investing in responsible companies. Because the truth is…
Investing in responsible companies can take on a few different forms. Depending on your priorities and investment approach, there will be different aspects of companies you’ll want to look for when trying to find responsible companies deserving of your investment (and definition of responsible).
Common Types of Responsible Companies to Invest In:
Investing in Socially Responsible Companies is a trend that is gaining a lot of momentum. More and more banks and mutual funds are offering socially responsible investment funds that retail and individual investors can put their money in to. So what makes a socially responsible company? These responsible companies have demonstrated a commitment to make more than just profit for investors (some even account for a triple-bottom-line). If you’re curious about impact investing and improving the social or environmental value of your investment portfolio then click the bolded link above to learn more about investing in socially responsible companies.
Investing in Cash Flow Responsible Companies is another prudent step for investors. While it seems like investing in responsible cash flow management is a no-brainer, you would be surprised how many traders don’t even know what free cash flow yield means. When management is responsible about how it handles operating cash flow, capital expenses and capital allocation you can be a lot more confident as a shareholder. That’s because if management is careful with how it spends money you are likely to see more cash come back to your pockets (in the form of dividends, share buybacks or growing intrinsic value).
Speaking of investing in responsible management…
Investing in Companies Responsible to Shareholders is something you should always keep in mind. When I started out investing in stocks I wasn’t too worried about a shareholder-friendly management team. But that turned out to be an expensive lesson. So pay attention to how management talks about shareholder value. While management shouldn’t burn bridges to meet earnings expectations, your life will be much less volatile if you can tell management is responsible to shareholders. If you read a few earnings conference call transcripts you’ll probably see management comment on dividends or share buybacks – their comments here can be very revealing about how responsible they are to shareholders.
As you can see, there are a number of different ways to investing responsible companies. And depending what type of responsibility your looking for you might end up with an innovative green-energy company or an entrenched brand with untouchable income streams. Of course, the holy grail of responsible investing is some combination on all of the above. But now let me ask you, what are you looking for in a responsible investment opportunity?
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