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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 socialinvest.org 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 investment, 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&P 500 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 (NYSE:PEP), part of my 4 stocks picks for 2011, H&R Block (NYSE:HRB) which came out as a top dividend financial stock, Entergy (NYSE: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:

Ticker Name Industry Price Dividend Yield Payout Ratio
(HRB) H&R Block Inc Commercial Serv-Finance 11.91 5.04 41.09
(NYSE:ABT) Abbott Laboratories Medical-Drugs 47.91 3.67 43.09
(NYSE:JNJ) Johnson & Johnson Medical Products 61.85 3.49 43.42
(NYSE:CPB) Campbell Soup Co Food-Misc/Diversified 34.75 3.34 44.08
(NYSE:MCD) McDonald's Corp Retail-Restaurants 76.76 3.18 49.2
(NYSE:PG) Procter & Gamble Co/The Cosmetics&Toiletries 64.33 3 48.84
(PEP) PepsiCo Inc/NC Beverages-Non-alcoholic 65.33 2.94 46.57
(NYSE:CL) Colgate-Palmolive Co Cosmetics&Toiletries 80.37 2.64 38
(NYSE:TRV) Travelers Cos Inc/The Property/Casualty Ins 55.71 2.58 19.14
(MHP) McGraw-Hill Cos Inc/The Multimedia 36.41 2.58 39.4
(NYSE:BAX) Baxter International Inc Medical Products 50.62 2.45 29.46
(NYSE:MDT) Medtronic Inc Medical Instruments 37.09 2.43 29.27
(NASDAQ:MSFT) Microsoft Corp Applications Software 27.92 2.29 24.24
(NYSE:APD) Air Products & Chemicals Inc Industrial Gases 90.95 2.16 39.69
(NYSE:UTX) United Technologies Corp Aerospace/Defense-Equip 78.72 2.16 30.61
(NYSE:CAH) Cardinal Health Inc Medical-Whsle Drug Dist 38.31 2.04 44.21