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




Total portfolio value




S&P 500 performance



Performance relative to S&P 500



Source: Yahoo! Finance; author's calculations.

Dividend divas
One of the best perks of owning companies that supply products and services that are needed in robust and recessionary economic environments is that cash flow, and therefore dividends, tend to be consistent.

Earlier this week we collected our $1.07 per-share dividend from apartment REIT AvalonBay Communities (NYSE: AVB  ) and added it to our dividends receivable total. To point out just how quickly these distributions can add up, we're likely to cover our commission costs for this portfolio in less than five months since I began this experiment. Over three years, the average yield here could add up to 10% to our bottom-line results. For AvalonBay, the prospect of higher interest rates in the coming years should continue to give it strong pricing power and will soon push on-the-edge home-buyers back into renting. It remains an intriguing long-term play with an improving dividend.

Consumer products juggernaut Procter & Gamble (NYSE: PG  ) also traded ex-dividend this week. The stock lost $0.6015 in value, which shareholders on record as of Oct. 16 can expect to receive as a payment on Nov. 15. P&G has raised its dividend in each year for the past 56 years, which is one of the longest streaks among publicly traded companies. With A. G. Lafley back at the helm, and the company focused on emerging-market growth, the chance is good that you'll see a 57th increase in either the first or second quarter next year.

Third-quarter earnings
As we enter earnings season, chipmaker Intel (NASDAQ: INTC  ) found itself first on the docket among the Basic Needs portfolio companies to report -- and it was a pretty decent report. For the quarter, Intel delivered $13.48 billion in revenue, which was essentially flat from the year-ago period, and adjusted EPS of $0.58. While revenue was in line with estimates, Intel's EPS topped Wall Street by $0.05.

Looking ahead, Intel sees a mixed bag. On one hand, weak PC demand is set to hamper chip demand heading into the normally lucrative holiday season, and its next-generation processing chip known as Broadwell is going to be delayed a few more months. Then again, Intel sees the potential for its Haswell PC chip, which will be succeeded by the Broadwell chip, to buck the weak trend in PCs and set Intel up for a possible revenue beat in the fourth quarter. I remain quite positive on Intel and wouldn't be surprised if its sales did top estimates in the fourth quarter.

Wheeling and dealing
I could easily have included electric utility NextEra Energy (NYSE: NEE  ) in the dividend discussion above as well, because it announced a $0.66 dividend payable on Dec. 16 to shareholders on record as of Nov. 29 earlier this week. But the really exciting news this week came from an announced deal between NextEra and First Solar that will allow First Solar to build a 250 MW solar plant in California for NextEra. Keep in mind that NextEra is already the nation's largest provider of clean energy by generating capacity, and this move will only further solidify that position. Though costly now, these investments in the future should give NextEra a clear advantage over its peers heading into the next decade.

Finally, the news wasn't as good for integrated oil and gas company Chevron (NYSE: CVX  ) , which announced on Thursday that it was suspending its shale gas exploration in eastern Romania after protests by local residents against its explorative activities. It's not as if Chevron doesn't have all the necessary permitting; it's simply a matter of resistance by local residents to a U.S.-based oil and gas firm. While overseas markets remain relatively untapped, we can also see how political instability can be an unexpected drag on Chevron's overseas prospects.

Back to basics
With the government shutdown over and Congress playing kick the can with the debt ceiling for another four months, these generally low-beta names had a hard time keeping up with the S&P 500's surge higher. Unsurprisingly, the portfolio lost ground by a hair this week. Over the long run, however, this group of cash flow kings is set to deliver steady income and market-trouncing gains in many types of growth environments. I still anticipate a big thumping of the S&P 500 over a three-year period.

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

The smart path to getting rich
The great thing about basic needs businesses is that they produce regular cash flow which can lead to a steady dividend. Why is this important? Because 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.

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9/29/2016 9:42 AM
AVB $180.05 Down -1.54 -0.85%
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