Procter & Gamble Sticks to Its Forecast While MasterCard Finally Splits

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 27, 2014 at 5:35PM

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 to Date

Waste Management 

$42.60

23.24

$967.71

(2.3%)

Intel

$23.22

42.64

$1,057.90

6.8%

NextEra Energy

$87.94

11.26

$980.30

(1%)

MasterCard

$64.557

15.30

$1,201.20

21.6%

Chevron 

$124.95

7.93

$922.18

(6.9%)

Select Medical 

$8.96

110.49

$1,226.44

23.9%

Ford

$17.50

56.57

$895.50

(9.5%)

American Water Works 

$43.13

22.96

$960.42

(3%)

Procter & Gamble

$81.29

12.18

$964.41

(2.6%)

AvalonBay Communities

$133.95

7.39

$883.25

(10.8%)

Cash

   

$0.88

 

Dividends receivable

   

$130.78

 

Total commission

   

($100.00)

 

Original Investment

   

$10,000.00

 

Total portfolio value

   

$10,190.97

1.9%

S&P 500 performance

     

4.7%

Performance relative to S&P 500

     

(2.8%)

Source: Yahoo! Finance, author's calculations.

Show me the money!
You can probably etch this adage on my tombstone, but the best aspect of basic-needs companies is that they generate consistent cash flow during both good and bad economic times. This means that even when the market has a bad week, like we saw last week, the above 10 companies aren't affected. The end result is steady dividends and often dividend growth. Last week we saw one company move into ex-dividend territory while another declared its quarterly stipend.

Going ex-dividend on Wednesday was consumer goods giant Procter & Gamble (NYSE:PG), which will be paying out $0.6015 per share to shareholders on Feb. 18. Perhaps even better than the upcoming dividend, investors were also privy on Friday to a surprisingly strong fourth-quarter earnings report from Procter & Gamble. P&G, the company behind household names like Tide detergent and Crest toothpaste, reported a 3% increase in organic revenue, helped most by a 5% rise in organic health-care sales, and stuck firm to its full-year revenue and EPS outlook for 2014 of 1% to 2% revenue growth, inclusive of a negative foreign currency impact, and EPS growth of 5% to 7%. Furthermore, volume and price action helped boost P&G's organic growth, signaling that demand and pricing power for the consumer goods juggernaut remains high.

Chipmaker Intel (NASDAQ:INTC) on Thursday declared a quarterly dividend of $0.225 to be paid out on March 1 to shareholders on record as of Feb. 7. The payout is consistent with its previous quarterly stipend and puts Intel on pace to deliver an annual yield of 3.6% based on Friday's closing price. Although Intel is struggling to adapt to a mobile-tech world, and is having to spend an exorbitant amount of cash on researching and developing new processors to run on mobile devices, the residual cash flow from its PC processing business looks as if it'll keep Intel's dividend moving higher for the foreseeable future.

Credit swap
On Wednesday, the long-awaited stock split of credit payment processing facilitator MasterCard (NYSE:MA) finally occurred, with the company splitting its shares 10-for-1. Although a stock split doesn't have any bearing on a company's value, the simple fact that shares are now at $78.51 as of Friday's close, instead of nearly $800, could make them easier to swallow for investors looking to add a few hundred dollars in MasterCard stock at a time. One situation worth monitoring, though, is a recent rash of credit card safety breaches -- most recently coming from Neiman Marcus -- which could thwart domestic credit card usage in the near term.

Thinking for the long, long term
Perhaps the one knock against electric utility NextEra Energy (NYSE:NEE) is the fact that it carries close to $28.2 billion in net debt. The reason it has such a large debt load has to do with its reliance on alternative-energy projects such as wind and solar energy for its electric generation. While these alternative energies are more costly to build, they'll drastically lower NextEra's long-term energy costs and should help keep consumers' electric bills lower as well. On Friday, the company announced it would be redeeming all outstanding Series "F" junior subordinated debentures due -- get this -- in 2069! Now that's long term thinking! NextEra plans to redeem these notes on March 1, which amounts to $375 million. It's but a small chunk of a big pie, but NextEra's willingness to lower its outstanding debt will be important if its share price is to head higher.

Ford "Navigates" Lincoln's future
Finally, on Thursday, the U.S.' second-largest automaker, Ford (NYSE:F), unveiled its newest Lincoln Navigator, which the company is touting as a more upscale family vehicle. The goal, according to a Reuters report, would be to hit a slightly younger audience (the 50 to 55 crowd) with this new vehicle and to help build upon a 3% increase in Navigator sales in 2013, which were likely helped by a rebounding U.S. auto market and improved economy. Ford has certainly hit home with its sleek designs and fuel efficiency of late, so I wouldn't doubt its ability to woo customers with its updated Lincoln Navigator. One thing is for certain, though: Ford needs a strong showing from Lincoln in 2014 if it's going to head higher.

Back to basics
It was nothing short of a miserable week for the stock market and, to some extent, even the Basic Needs portfolio, as growth concerns in the U.S. and abroad spanked the S&P 500. Ultimately, just one company headed to the upside this week (American Water Works), but the overall portfolio still outperformed the S&P 500 by a hair when all was said and done. As I've said before, this portfolio wasn't designed to compete on a short-term basis but to instead use its superior cash flow capabilities to outperform in any economic environment. I suspect we'll be looking at a strong outperformance from this portfolio in two and a half years.

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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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