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.

Show me the money!
As you might have suspected with a portfolio full of cash-flow divas, this week's primary theme was all about "showing me the money," with the receipt of two dividends in our pockets and the announcement of a sizable dividend increase by another company.

Last Tuesday we received our $1 quarterly stipend from integrated oil and gas exploration and production giant Chevron . Although the exploration side of Chevron's business hasn't been the best lately, with the company curtailing its development of the Rosebank project because of costs and exploration protests in Romania, its sheer size and non-E&P operations are picking up the slack. Unless we were to see an absolute plunge in oil prices, Chevron's cash flow appears safe, and a dividend hike in 2014 appears very likely.

The same story goes for alternative-energy-based electric utility NextEra Energy , which today paid out $0.66 per share to shareholders. NextEra's dividend certainly won't be the highest in the sector, given the high debt load it took on when it built out its network of wind and solar energy projects, but the company is setting itself up for sustainably lower long-term costs than its peers, which should eventually help that dividend push higher.

Finally, payment processing facilitator MasterCard wowed Wall Street and investors and blew past $800 per share at one point after announcing plans to split its share price 10-for-1, raise its quarterly payout by 83% to $1.10 per share from $0.60, and launch a $3.5 billion share repurchase program, which will reduce the number of shares outstanding and increase EPS. This move is a win for shareholders all the way around. Even though the new yield is still just 0.55%, it's better than the 0.3% yield shareholders had been receiving. With many emerging markets still operating in cash, MasterCard could have double-digit growth written in its cards for decades to come.

A renewed interest
It's been a bit of a rough ride for residential REIT AvalonBay Communities since this portfolio launched more than four months ago, but the stock received a timely upgrade from hold to buy this past week from research firm KeyBanc, which also placed a price target on Avalon of $139 (leaving 17% upside from Friday's close to KeyBanc's target price). KeyBanc's upgrade was based on AvalonBay's attractive valuation and improving fundamentals.

But I feel the upgrade makes even more sense given the strong U.S. economic data we've witnessed recently. This data could necessitate a move by the FOMC to taper QE3, potentially leading to a rise in interest rates. Higher rates are good news for a rental-community operator like AvalonBay, which thrives when higher lending rates push prospective homeowners back into its rental communities.

An Obamacare bump
Finally, hospital and outpatient rehabilitation center operator Select Medical spiked higher this week despite a lack of company-specific news. What I would point out, though, is that we were privy to the Department of Health and Human Services release of the Obamacare's enrollment figures through the end of November this past week. The data didn't show particularly inspiring enrollment figures from previously uninsured individuals, but the sheer number of applicants and Medicaid-eligible enrollees is pushing hopes up that hospitals like Select Medical will see smaller revenue write-offs beginning in 2014. As one of the deepest values in the sector, I continue to believe that Select Medical could head much higher.

Back to basics
With the market suffering its worst weekly loss in months, the Basic Needs portfolio gained the most ground on the S&P 500 in nearly as much time. Big gains from MasterCard and Select Medical countered by minimal downside from other stable cash-flow-portfolio components helped show why this portfolio should be in great shape were we to experience any significant downside trading. Over the long haul I'm still quite confident this portfolio will handily outperform the S&P 500.

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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 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