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.
Company | Cost Basis | Shares | Total Value | Return |
|---|---|---|---|---|
Waste Management | $42.60 | 23.24 | $1,071.36 | 8.2% |
Intel | $23.22 | 42.64 | $1,017.82 | 2.8% |
NextEra Energy | $87.94 | 11.26 | $975.00 | (1.5%) |
MasterCard | $645.57 | 1.53 | $1,154.31 | 16.9% |
Chevron | $124.95 | 7.93 | $983.56 | (0.7%) |
Select Medical | $8.96 | 110.49 | $948.00 | (4.2%) |
Ford | $17.50 | 56.57 | $962.26 | (2.8%) |
American Water Works | $43.13 | 22.96 | $969.14 | (2.1%) |
Procter & Gamble | $81.29 | 12.18 | $1,034.69 | 4.5% |
AvalonBay Communities | $133.95 | 7.39 | $868.77 | (12.2%) |
Cash | $0.88 | |||
Dividends receivable | $83.78 | |||
Total commission | ($100.00) | |||
Original investment | $10,000.00 | |||
S&P 500 performance | 5.6% | |||
Performance relative to S&P 500 | (4.9%) |
Source: Yahoo! Finance, author's calculations.
Show me the money!
I've said it before and I'll say it again -- one of the greatest allures of basic needs stocks is nearly guaranteed cash flow that often leads to consistent and growing dividend payments. This past week we received a payment, and another company declared its upcoming quarterly distribution.
Our payment came from hospital and outpatient rehabilitation center operator Select Medical which divvied out a $0.10-per-share payout on Friday. Hospitals aren't often known for large dividends, as uncollected revenue from treated patients who are uninsured or underinsured often makes it difficult for hospitals to confidently pay out much of their cash flow. Select Medical, though, has cost-cutting measures in place, as well as Obamacare in its sails, which should help maintain its portfolio-leading yield of 4.7%.
In addition to the received dividend payment, residential REIT AvalonBay Communities announced a fourth-quarter dividend of $1.07 per share payable on Jan. 15, 2014, to shareholders on record as of Dec. 31. With lending rates hovering near a four-month low, AvalonBay has taken a bit of a beating recently since it operates rental communities throughout the U.S. that tend to see better pricing power and demand when rates move higher and push people away from buying a home. With the end of the Federal Reserve's monetary easing program, QE3, in sight, I see no reason why we shouldn't expect lending rates to ease off their lows and give AvalonBay a long-term boost.
Also in the news
Chipmaker Intel had a rough ending to last week after noting at its investor meeting that upcoming sales for fiscal 2014 would be similar to those of 2013 ($52.6 billion). Compared to Wall Street expectations, that would mean a sales shortfall of up to $1 billion. Gross margin for the processing giant is expected to range between 55% and 65%, which was in line with expectations. Intel is having to play catch-up to its peers with PC sales on a rapid decline and mobile-device sales taking off. In the interim that means spending quite a bit on research and development, which hurts margins and slows its ability to boost profits. It's unpleasant over the short term for shareholders, but Intel still looks poised for success in the cloud and in mobile over the long run.
It wasn't exactly rosy news for Chevron last week, either. The integrated oil and gas company announced late in the week that, at least for the time being, it would not develop its Rosebank oil project, which is offshore north of Scotland, as the cost to work these deposits could equal as much as $10 billion. Discoveries haven't been the issue for oil and gas exploration and production companies like Chevron -- the feasible costs to develop these assets is really the conundrum. No decision has been made yet as to what Chevron will do with the asset, but shareholders expecting a pop from Rosebank can probably cross it off the list for the time being.
Finally, automaker Ford announced on Thursday that it would invest $150 million in its Buffalo Stamping Plant to add jobs and expand operations that include production of components used on its F-Series pickups, Edge, Focus, and Econoline. Ford is clicking on all cylinders and can certainly afford to spend extra on R&D and operational improvements if it hopes to keep running toe-to-toe with General Motors domestically and Honda and Toyota abroad.
Back to basics
It was another rough week relative to the S&P 500, with high-growth companies, IPOs, and other speculative issues pushing investor sentiment higher. These 10 basic needs stocks certainly weren't chosen to keep pace with a nearly hyperbolic market, but should be primed, thanks to a slew of dividends that are always in the works and a steady stream of cash flow, to outperform the S&P 500 over this three-year experiment.
Check back next week for the latest update on this portfolio and its 10 components.
How this simple strategy can make you rich
If there's one thing you'll notice about basic-needs stocks, it's that most pay a dividend -- and dividend stocks can make you rich. While they don't garner the notoriety of highflying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of their quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts identified nine rock-solid dividend stocks in this free report. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.
The article The Basic Needs Portfolio originally appeared on Fool.com.
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, and Waste Management. It also recommends Chevron, General Motors, 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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