The Basic Needs Portfolio
In May, I announced my intention to create a portfolio that embodied life's basic needs. Understandably, many of the truly basic needs in our everyday lives have transcended far beyond just the need for water and shelter. To that end, over a period of 10 weeks I detailed 10 diverse companies that I feel 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, and command incredible pricing power in nearly any economic environment.
If you'd like a closer look at what my reasoning was behind each selection, you can do so by clicking on any, or all, of the portfolio components below:
Let's take a look at how our portfolio of basic needs stocks fared this week:
American Water Works
Procter & Gamble
Total portfolio value
S&P 500 performance
Performance relative to S&P 500
Source: Yahoo! Finance.
Dividend news this week
As you can see above, this week's worst performers were automaker Ford and chip maker Intel , shedding 2.7% and 3.1%, respectively. Both moves lower, though, have been somewhat overstated as both went ex-dividend this week, meaning the value of the dividend has been removed from the share price in anticipation of the upcoming payout.
Ford announced in mid-July that it would be paying out a $0.10 quarterly dividend on Sept. 3 for shareholders on record as of Aug. 2. With Alan Mulally's focus on international sales and fuel-efficient engines going so well, Ford doubled its dividend to $0.10 per quarter from $0.05 per quarter earlier this year, restoring the company to its pre-recession payout levels.
Intel, on the other hand, declared a quarterly stipend of $0.225 per share in late July, payable to shareholders on Sept. 1 who are on record as of Aug. 7. Intel's business growth has been put into question because of the proliferation of smartphones and tablets, which have pressured legacy PC sales. While still generating significant cash flow from its dominant microprocessor position in PCs, Intel is doing what it can to reinvest in cloud-computing hardware and mobile processing innovations for the future.
Earnings news this week
Perhaps this week's most surprising earnings report came from the market-cap midget of this portfolio, hospital operator Select Medical . For the second quarter, Select Medical saw its revenue improve roughly 1% to $756.7 million as net operating income fell by nearly 6% to $88.3 million. The company's specialty hospital segment saw revenue increase by just 0.4% and EBITDA fall 5.7% while its outpatient rehabilitation operations delivered gains on both fronts. The truly exciting part was that Select Medical's adjusted profit of $0.27 per share topped EPS expectations of $0.24 by Wall Street and it backed its previously issued full-year revenue forecast. The company also declared a $0.10 quarterly dividend payable on Aug. 30 for shareholders on record as of Aug. 20.
Water utility provider American Water Works also delivered solid second-quarter results this week. For the quarter, American Water Works delivered a 3% decrease in revenue to $724 million as EPS declined to $0.57 from $0.66 in the year-ago period. This may not seem like great news, but the decline in revenue and profit primarily relates to abnormally hot weather that led to drought conditions throughout much of the U.S. at this time last year. If it's any consolation, American Water Works stood by its full-year EPS forecast of $2.15 to $2.25 and plans to pay out a $0.28 per share dividend to shareholders on Sept. 3.
Finally, according to a Bloomberg report, residential-REIT AvalonBay Communities and Equity Residential could be looking to sell off or spin into an IPO its DeWAG Management German properties that were acquired when the two combined to purchase Archstone last year. DeWAG represents a non-core asset for both companies and a sale or IPO would help generate cash that both companies can use to pay down debt or accelerate the opening or building of new communities. Neither company would comment on these rumors, but it would be a logical next step.
Back to basics
Having completed our first week of trading, I have to say I'm quite impressed with the performance of this portfolio so far. Sure, it lost value this week on a nominal basis, but it lost a bit less than the S&P 500 did, thus outperforming the index for the week. The premise of this portfolio is that it'll outperform in pretty much any economic environment, and this past week could be the beginning of what I suspect will be a three-year trend of outperformance.
Check back next week for the latest update on this portfolio and its 10 components.
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. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. 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 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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