The Basic Needs Portfolio

The Basic Needs Portfolio

-In May, I announced my intention to create a portfolio that embodied life's basic needs. To that end, over a period of 10 weeks I detailed 10 diverse companies that I think will outperform the broad-based S&P 500 over a three-year period because of their ability to outperform in both bull and bear markets, as well as command incredible pricing power in nearly any economic environment.

If you'd like a closer look at my reasoning behind each selection, just click on any, or all, of the following portfolio components:

Let's look at how our portfolio of basic-needs stocks fared last week.


Cost Basis


Total Value


Waste Management










NextEra Energy















Select Medical










American Water Works





Procter & Gamble





AvalonBay Communities







Dividends receivable


Total commission


Original investment


S&P 500 performance


Performance relative to S&P 500


Source: Yahoo! Finance, author's calculations.

With the majority of earnings reports out of the way, we once again turned our attention to dividends within the Basic Needs Portfolio -- but not before one last quarterly report.

Let the good times flow
Water utility giant American Water Works was the lone company within the portfolio to report third-quarter results last week. For the quarter, American Water delivered a 2.2% decline in net income to $150.7 million, or an adjusted $0.84 per share, as cooler-than-expected weather negatively affected water usage. The $0.84 per-share profit was a penny shy of estimates. American Water boosted the low end of its guidance for the full year but chopped a bit off the top to a new range of $2.17-$2.22. One thing to keep in mind, though, is that American Water Works' costs remain very much under control and water demand, even with a reported negative weather effect of $0.03-$0.06 through the first nine months, is relatively consistent, so there's no reason to believe the utility won't keep churning out steady profits.

Dividends, dividends, dividends
As I mentioned above, the big news this week was the receipt of one dividend payment and two other stocks going ex-dividend, signaling that payouts are right around the corner.

Although it's somewhat laughable given MasterCard's gigantic share price, last week we collected our $0.60 per-share quarterly dividend from the credit payment facilitator. MasterCard is, without question, the weakest-yielding stock of this bunch, but it also has the most promise for growth, given that the majority of overseas markets still rely on cash for transactions. With $6 billion in cash, no debt, and a minuscule payout ratio of 8% -- and with rival Visa having recently boosted its dividend -- MasterCard has the potential to easily double its dividend (or more) from here.

In addition to receiving our quarterly stipend from MasterCard, we saw Select Medical and Intel go ex-dividend this week.

Hospital and outpatient rehabilitation center operator Select Medical remains this portfolio's highest-yielding company at 4.8%. It is set to pay a $0.10 dividend on Nov. 22 to shareholders of record as of Nov. 12. Select Medical has a lot riding on the success of Obamacare, given that more people with insurance should help lower its uncollectable revenue. That would make its dividend even more sustainable.

Intel is primed to pay a quarterly stipend of $0.225 on Dec. 1 for shareholders of record as of Nov. 7. Intel has been mired in a bit of a struggle for the past year as PC sales have slumped in favor of mobile devices like smartphones and tablets. Although Intel has been investing heavily in research and development of cloud and mobile-based processors, which has certainly stymied earnings growth in the interim, its still-strong free cash flow should continue to fuel its very attractive 3.7% yield.

The China surge
In the automotive sector, Ford donned its cape and did its best Superman impression by reporting a 55% increase in wholesale auto sales in China for October to 93,969 units. For the year, Ford has now increased sales in China by 52%, and it's well on the way to meeting its goal of 5% market share in the rapidly growing overseas market, perhaps by the end of this year. Ford's improving fuel economy, mixed with fresh styling and reasonable pricing, should keep fueling its results. I would estimate it may lead to market share of nearly 10% before 2016 if this trend continues.

Back to basics
It was another rather ho-hum week for the Basic Needs Portfolio, with these generally low-beta stocks losing ground to the S&P 500. Let's keep in mind that ex-dividends did play a small role in the week's underperformance, but we can also expect a nice bevy of dividends to roll in over the next four weeks from a number of companies as a result. This portfolio is ultimately primed to deliver incredible cash flow in any economic environment, and I'm convinced that this group of companies will handily outperform the S&P 500 when we look back three years from now.

Check back next week for the latest update on this portfolio and its 10 components.

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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of, and recommends Ford, Intel, MasterCard, Visa, and Waste Management. It also recommends Chevron and Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published