Ford Boosts Dividend While Chevron Weakens on Production Concerns

A three-year-long experiment intent on showing that life's most basic needs can result in market-beating portfolio gains, hefty dividend income, and a good night's sleep!

Jan 13, 2014 at 6:33PM

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 markets and bear markets, as well as their 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

$1,013.50

2.4%

Intel 

$23.22

42.64

$1,088.60

9.9%

NextEra Energy

$87.94

11.26

$982.44

(0.8%)

MasterCard

$645.57

1.53

$1,277.18

29.3%

Chevron

$124.95

7.93

$959.61

(3.2%)

Select Medical

$8.96

110.49

$1,166.77

17.9%

Ford

$17.50

56.57

$909.08

(8.2%)

American Water Works 

$43.13

22.96

$964.09

(2.6%)

Procter & Gamble 

$81.29

12.18

$978.05

(1.2%)

AvalonBay Communities

$133.95

7.39

$900.10

(9.1%)

Cash

   

$0.88

 

Dividends receivable

   

$122.87

 

Total commission

   

($100.00)

 

Original Investment

   

$10,000.00

 

Total portfolio value

   

$10,363.17

3.6%

S&P 500 performance

     

7.8%

Performance relative to S&P 500

     

(4.2%)

Source: Yahoo! Finance, author's calculations.

Show me the money!
As you'll likely recall, one of the best perks of a portfolio full of basic-needs stocks is the consistent dividend payments. Because the products and services these companies offer are needed fairly consistently in good and bad economic environments, shareholders needn't worry that the free cash flow won't be there. Last week we had two companies making dividend news.

On Tuesday, credit payment facilitator MasterCard (NYSE:MA) went ex-dividend; $1.10 was removed from its share price in anticipation of a quarterly dividend payment to shareholders on Feb. 10. While MasterCard's annual yield of 0.5% isn't going to cause income investors to clamor over purchasing its stock, the simple fact that it raised the dividend by 83% to $1.10 per quarter in December and announced a $3.5 billion share buyback is more than enough reason to believe that MasterCard will continue to deliver for shareholders on all fronts. 

Also, in a move that proves Ford (NYSE:F) is driving over the competition, on Thursday the auto giant announced a 25% increase of its first-quarter dividend to $0.125 per share from $0.10. This marks Ford's highest quarterly payout since late 2001! In addition to boosting its dividend and pushing its new yield to 3.1%, Ford also announced on Thursday that sales in the Association of Southeast Asian Nations region hit a new record in 2013 of 95,906 units sold -- a 7% increase over the previous year in the zone. Thailand represented the bulk of Ford's growth in the region last year and speaks to its niche price points and improving fuel economy, which appeal to overseas consumers. 

Looking into the crystal ball
In addition to two dividend-based stories, the Basic Needs Portfolio also had two components update their earnings guidance.

Hospital and outpatient rehabilitation center operator Select Medical (NYSE:SEM) was hit hard on Friday, losing 7% after announcing its business outlook for the upcoming fiscal year. Select Medical said in a press release that it anticipates reporting $3.05 billion to $3.15 billion in revenue and earnings per share of $0.84 to $0.93 this year. By comparison, Wall Street had anticipated Select Medical would earn $0.91 in EPS on $3.03 billion in revenue. Following Select Medical's 20% romp higher in recent weeks, investors seem to be displeased with the in-line EPS guidance. However, the slight bump in revenue is encouraging and demonstrates to me that Obamacare's requirement that all individuals purchase health insurance might be paying off.

However, there was no masking the pessimistic tone in Chevron's (NYSE:CVX) updated guidance. On Thursday, the integrated oil giant announced preliminary results for the fourth quarter and noted that profit was expected to be comparable with the $4.95 billion it reported in the third quarter. Wall Street, though, had expected a profit of $5.69 billion. Chevron blames the subpar performance on a slight decline in production caused by refining-facility maintenance in the Gulf of Mexico, Australia, and Angola. It probably hasn't helped that West Texas Intermediate crude has been hit hard to start 2014, either. Despite these extremely short-term concerns, Chevron's immensely diversified assets give me hope that its share price is headed much higher over the long run.

I have the power!
Last week I mentioned just how beneficial the historic polar vortex, which blanketed much of the country in a record cold spell, would be for electric utility providers. This past week brought confirmation of what should be a solid upcoming quarter for NextEra Energy (NYSE:NEE). On Tuesday, the Electric Reliability Council of Texas noted that electric demand reached 57,277 megawatts in the hour ended 8 a.m. CST, setting an all-time high for MW usage within an hour. If weather in the U.S. continues to work in favor of electric utilities and the S&P 500 stops going straight up, NextEra could find itself sitting pretty in 2014.

Back to basics
Although the S&P 500 managed to tick higher for the week, the weakness in Select Medical proved too much for this portfolio to overcome and we ultimately lost ground for the week. Ultimately, we have to remember that this portfolio was designed to outperform over the long run, not on a week-to-week basis, so we'll take our losses now and then and move on with our heads held high.

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

Are you utilizing this tried-and-true winning strategy?
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

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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