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


Sources: Yahoo! Finance, author's calculations.

Show me the money!
As I've often said, perhaps the most attractive aspect of building a portfolio of companies that provide basic needs products that remain in demand regardless of how the economy performs is that their cash flow remains steady -- and steady cash flow leads to consistent and/or growing dividends. This week we received two payouts which have been reflected in the dividends receivable column above, while also seeing another company go ex-dividend.

The first quarterly payment we gladly accepted as of yesterday was $0.225 per share from chipmaker Intel . Intel has been struggling with a move away from PCs and toward mobile devices like smartphones and tablets where, before the past year, it really had no presence. This necessitated Intel to spend quite a bit on research and development in order to play catch-up with its peers and position itself for a strong future of growth in the cloud and with next-generation mobile devices. With a growing presence in tablets, its ongoing dominance in the slowly shrinking PC category, and a nice start in cloud-based hardware, I'd say Intel's dividend is a safe bet to continue to return 3%-4% to shareholders for years to come.

We also received a $0.10 quarterly payout from automaker Ford as of today. If you recall, prior to Mulally's hiring in 2006 when Ford was in a tailspin, it paid out a $0.10 quarterly dividend which disappeared during the recession. Earlier this year Mulally helped restore that dividend back to $0.40 on an annual basis. Ford continues to amaze critics with its slick new designs, above-average fuel economy, and fantastic product mix of trucks in the U.S. and smaller economy cars in markets like China and India, where growth is soaring. As long as Ford continues its push into emerging markets and its European business continues to stabilize, I see no reason why its profits, and dividend, couldn't move higher.

Going ex-dividend last week was electric utility NextEra Energy which is scheduled to pay out a $0.66 per share dividend to shareholders on Dec. 16. Although NextEra's 3% yield might look a bit weak compared to other electric utility providers, keep in mind that it's also carrying around a little extra debt than its peers because of its heavy investments in alternative energies like wind and solar power. While these investments may reduce the amount of cash flow diverted to paying dividends, it sets NextEra up for lower long-term costs than its peers.

Analyst ratings
I certainly don't advocate paying too much attention to analyst ratings, but I suggest at least noting analysts' reasoning behind their ratings to make sure it doesn't affect our long-term investing thesis. Earlier last week RBC Capital initiated coverage on Procter & Gamble with a "sector perform" rating and a price target of $91, implying about 8% upside from its Friday close. I would personally say there's nothing particularly exciting about RBC's coverage initiation or price target, and that this would speak to Procter & Gamble's steady and almost boring business model. As long as P&G is pushing into emerging markets and A.G. Lafley is at the helm, I would sit back, relax, and enjoy the ride.

Black Friday bonanza
Finally, although there was no major news out this week with credit card payment facilitator MasterCard , now is the time of the year where it could really shine. If you think about it, MasterCard is set to benefit no matter what this holiday season. It'll thrive if consumers decide to spend more than projected and would also stand to do well if those same consumers are worried about spending their cash, leaving them to turn to credit. Since MasterCard has no loan liability, it's free to benefit in practically any type of environment. Once we get a better idea of how retailers fared on Black Friday, I believe you could see MasterCard receive a nice boost.

Back to basics
Yet again it wasn't the best week for this low-beta portfolio, losing out slightly the hyperbolic S&P 500, but it wasn't a bad week either. Let's remember that this portfolio was built with long-term outperformance in mind, and that comes with natural ups and downs in the market and the benefit of steady dividend payments from all 10 portfolio components. Nothing has fundamentally changed since we began this experiment roughly four months ago, and there's plenty of time for these companies to outperform the S&P 500 moving forward.

Are you missing out on this simple money-making opportunity?
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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, and Waste Management. it also recommends Chevron and Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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