Methodology
Index Construction
To be eligible for inclusion in the KLD Dividend Achievers Social Index (“Index”), a stock must be incorporated in the United States or its territories, trade on the NYSE, NASDAQ, or the American Stock Exchange LLC (“AMEX”), and must be a member of the KLD Large Cap SocialSM Index (“LCSI”) or KLD Domini 400 SocialSM Index (“DS400”).
Companies in the Russell 3000® and Standard & Poor’s 500® involved beyond specific KLD thresholds in adult entertainment, alcohol, tobacco, firearms, gambling, nuclear power and military weapons are ineligible for consideration for the LCSI or DS400.
After KLD applies these screens, each company is evaluated based on performance on the following issues: environment, community relations, diversity, employee relations, human rights, product quality and safety, and corporate governance. KLD evaluates companies in the context of their industry and sector as well as in relation to the broader market.
Furthermore, The Mergent Dividend Achievers™ overlay is applied to the combined LCSI and DS400 universe. The overlay selects only those stocks that have paid increasing regular cash dividends for a minimum of ten or more consecutive years.
In addition, each company’s stock average daily cash volume must exceed $1 million for the November and December prior to the February Semi-Annual Reconstitution Date and for the May and June prior to the August Semi-Annual Reconstitution Date.
Index Calculation
The index is calculated using an equal weighting methodology. Between the semi-annual reconstitution dates, the Index weights of each company will float. Hence it will be possible for a company’s weight to exceed the average weighting of the index constituents during this interim period.
Index Reconstitution
The Index is reconstituted semi-annually after the close of business on the last trading day in January and July (“Semi-Annual Reconstitution Date”) according to KLD’s and Mergent’s proprietary screening methodologies
Index Maintenance
Shares adjusted to reflect a split, a reverse split or stock dividend will be made on the action’s effective date. Such changes do not require an adjustment to the divisor and are processed automatically.
For changes in a company’s shares outstanding due to a merger, acquisition or spin-off, and adjustment to the stock’s index shares will be made effective after the close on the effective date of the corporate action.
Dividend Payments: Dividend payments will be re-invested in the Total Return Index on the ex-date. There will be no adjustments to the Price Return Index.
Extraordinary Distributions: In the event of certain types of corporate actions such as the payment of a dividend, other than an ordinary cash dividend, rights offering, or a distribution with respect to a component stock, Mergent will adjust the divisor for the Price Return Index to reflect the adjustment to the price of that component stock for the distribution.
Mergers: In the event of a merger between two companies included in the Index, the common shares of the surviving issuer will continue to be represented in the Index. In the event of a merger between a company in the Index and a company not in the index, Mergent and KLD shall evaluate the permanence of the new entity.
Acquisitions: A company will be dropped from the Index in the case of its acquisition.
Environmental, Social and Governance (“ESG”) Standards: A company will be dropped from the Index if it is dropped from the LCSI or DS400 due to it not meeting KLD’s ESG standards.
Bankruptcy or prolonged Trading Suspension: In the event of bankruptcy, the stock will be removed from the Index effective after the close on the date of the filing. In the event that trading in an Index constituent is suspended, the Calculator in consultation with Mergent shall decide whether the stock will be removed from the Index as soon as applicable. For purposes of minimizing impact to each applicable Index, the stock deleted will be removed at the value at which it last traded.
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