MasterCard Pays Shareholders as Ford's January Auto Sales Slump

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!

Feb 10, 2014 at 6:04PM

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 has fared since we began this experiment.

Company

Cost Basis

Shares

Total Value

Return

Waste Management 

$42.60

23.24

$995.60

0.6%

Intel

$23.22

42.64

$1,031.89

4.2%

NextEra Energy

$87.94

11.26

$1,020.27

3%

MasterCard

$64.557

15.30

$1,167.54

18.2%

Chevron

$124.95

7.93

$888.56

(10.3%)

Select Medical 

$8.96

110.49

$1,134.73

14.6%

Ford

$17.50

56.57

$846.85

(14.5%)

American Water Works 

$43.13

22.96

$970.75

(2%)

Procter & Gamble 

$81.29

12.18

$941.64

(4.9%)

AvalonBay Communities 

$133.95

7.39

$944.52

(4.6%)

Cash

   

$0.88

 

Dividends receivable

   

$132.46

 

Total commission

   

($100.00)

 

Original Investment

   

$10,000.00

 

Total portfolio value

   

$10,075.69

0.8%

S&P 500 performance

     

5.1%

Performance relative to S&P 500

     

(4.3%)

Source: Yahoo! Finance, author's calculations.

It was a rollercoaster week for the markets. Weak economic data on Feb. 3 precipitated a nearly 41-point sell-off for the S&P 500, but the index gained it all back, and then some, by week's end. The week's primary focus again turned to dividends, with a mix of contracts, collaborations, and a bit of auto-sales weakness mixed in as well.

Show me the money
To pull a line from the movie Idiocracy, "I like money." There's absolutely nothing wrong with liking money -- especially if companies are doling out essentially free money to us on a quarterly basis. One of the great advantages of investing in basic-needs stocks is that cash flow for these companies remains consistent in practically any economic environment, affording you the expectation of consistent dividends. For the week we pocketed one payment while witnessing another company go ex-dividend.

Following its 10-for-1 reverse split, payment processing facilitator MasterCard (NYSE:MA) paid out an adjusted $0.11 per share today which has been recorded in our dividend receivable column above. MasterCard actually ran into a bit of a brick wall in its latest quarterly report, missing estimates for only the second time in its eight-year history as a publicly traded company. But I see any downside reaction as a buying opportunity since much of the world is still using cash for payments, offering MasterCard what could be a multidecade double-digit growth opportunity. With no debtor liability, MasterCard is a premier financial service name to know.

Going ex-dividend in the week was chipmaking giant Intel (NASDAQ:INTC), which is expected to pay shareholders $0.225 per share on March 1 if they're on record as of last Friday. Intel's PC business has struggled mightily as the usability of mobile devices has improved, forcing the company into a corner for the first time in more than a decade and requiring it spend copious amounts of money on research and development to create the next generation of mobile processing chips. While this is hampering its near-term bottom-line results, the good news for long-term investors is that Intel's residual PC business cash flow is more than enough to cover a stable and growing dividend. This means Intel's 3.7% yield may actually improve.

Two heads are better than one
Integrated oil and gas giant Chevron (NYSE:CVX) hasn't had a banner start to the year, reporting a dismal earnings shortfall in the fourth quarter that was highlighted by a 58% drop in refining earnings.

However, Chevron is making plenty of smart strategic moves, including announcing a technological alliance with General Electric (NYSE: GE) on Feb. 3. The Chevron GE Technology Alliance (no bonus points awarded for originality) will combine Chevron's immense oil and gas recovery knowledge with GE's technological innovation to potentially solve or address problems plaguing the energy industry. Chevron, for example, has vast natural-gas assets off Australia's coast and could certainly benefit from technology that would aid in the discovery and extraction of gas in these fields. I'd look for Chevron to make additional collaborative moves in the future if it'll help lower long-term costs.

Where the wind blows
Unlike Chevron, electric utility NextEra Energy (NYSE:NEE) built upon its strong start by announcing on Wednesday that the Tri-State Generation & Transmission Association will buy electricity from a 150-megawatt NextEra wind farm in eastern Colorado under a 25-year contract. For NextEra, it's just another sign of its alternative-energy dominance. NextEra has more than 10,000 MW of wind power commissioned and is well on its way to dominating its peers in terms of lower long-term costs due to its heavy push toward wind and solar energies. NextEra does boast a bit more debt than many peers, but its lower long-term costs should handily make up the difference.

Hit the brakes
We know they can't all be winners, and Ford's (NYSE:F) January auto sales certainly weren't great. For the month, U.S. auto sales tumbled 7% to 154,644 vehicles. Though a small portion of sales, Lincoln unit sales rose a robust 43%, while sales of the Ford Taurus, Focus, and Explorer struggled, falling by 39%, 26%, and 20%, respectively. Partially to blame was extremely cold winter weather that affected deliveries, but I don't think we can overlook some very difficult year-over-year comparisons as well. I fully expect Ford to continue to thrive, but its year-on-year growth will almost assuredly slow as lending rates inch slightly higher.

Back to basics
It's apparent that the Basic Needs Portfolio didn't appreciate the volatility from the prior week, as this portfolio shed 0.1% while the S&P gained nearly 1% last week. Recent declines in our two top gainers have backed the portfolio up a bit, but a number of expected dividend payments over the next four weeks will help close the underperformance gap. As I've always said, this portfolio was made to outperform over the long run and not on a week-to-week basis, and I still feel confident that the consistent cash flow generated from these 10 companies can power them past the S&P 500.

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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 owns shares of General Electric and 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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