Should investors ditch their ethics in pursuit of income?

Should you throw your ethics out the window?

Dividend-paying stocks will turn heads for those seeking income, but, despite the current appeal, investors should still analyse the long-term outlook for stocks if they plan to invest over a long period of time. Savvy investors must not ignore the implications if more shareholders turn ethical, which is still the trend, as these businesses will lose out.

“There are still big questions to be addressed about these companies,” Mr Mould said, such as renewable energy concerns for oil and gas companies and the impact that the respiratory virus could have on the health of the tobacco industry.  

Throwing away your principles in favour of quick returns can be dangerous in the long run but even so, Lewis Grant, of fund group Federated Hermes, said people with ethics have got a habit of shifting their views to meet their investment concerns.

“It’s sad to say but when things get a little bit stretched and they start to lose money, people’s ethics aren’t quite what they once were,” he said.

Those prioritising dividends above all else would be “short-sighted” and will pay the price later down the line, he added. 

Investing responsibly may appear to be a luxury when markets take a turn for the worse, however, people who had invested according to ethics and buying “responsible” companies would still have benefited from doing so. 

Responsible, ethical or environmentally-conscious investors would have avoided companies that have high carbon emissions including airline and cruise stocks – which have been hit by plunging demand. Stocks that rate with a high sustainability ranking have been found to have better returns on average than companies that rank low, investment firm Fidelity has found. 

Fiona O’Neill, of the fund group, said that during the 36 days between February 19 and March 26 when the S&P 500 index fell 27pc, those that scored high on Fidelity’s environmental, social and governance rankings were most protected from the drop.

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