Ford, Intel, and American Water Works Shareholders Cash In

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!

Mar 3, 2014 at 6:05PM

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

$964.46

(2.6%)

Intel

$23.22

42.64

$1,055.77

6.6%

NextEra Energy

$87.94

11.26

$1,029.05

3.9%

MasterCard

$64.557

15.30

$1,189.12

20.4%

Chevron 

$124.95

7.93

$914.57

(7.7%)

Select Medical

$8.96

110.49

$1,238.59

25.1%

Ford

$17.50

56.57

$870.61

(12.1%)

American Water Works

$43.13

22.96

$1,029.53

4%

Procter & Gamble 

$81.29

12.18

$958.08

(3.3%)

AvalonBay Communities 

$133.95

7.39

$953.09

(3.7%)

Cash

   

$0.88

 

Dividends receivable

   

$162.88

 

Total commission

   

($100.00)

 

Original Investment

   

$10,000.00

 

Total portfolio value

   

$10,366.63

3.7%

S&P 500 performance

     

8.8%

Performance relative to S&P 500

     

(5.1%)

Source: Yahoo! Finance, author's calculations.

It was another somewhat tough week for these basic needs stocks, with the S&P 500 off to the races and these low-beta stocks struggling to keep up with the S&P 500's vault higher. Overall, however, this portfolio added value this week and was highlighted by a trio of dividend payments received, as well as two companies which have both gone ex-dividend.

A trio of dividends received
If there was a trend this past week it was all about dividends!

First up we have water utility American Water Works (NYSE:AWK), which both reported its fourth-quarter results and paid out $0.28 per share to investors as of today. On Wednesday, American Water Works reported a 4.6% increase in revenue to $712.3 million, aided primarily by acquisitions, as its net income expanded 7.6%. American Water Works' profit would have been even more robust had it not taken a loss on a debt-tender offering. Over the course of fiscal 2013, American Water added an additional 30,000 customers to its regulated base, of which 20,000 were wastewater customers -- a higher-margin growth-driver for the company's long-term success. Water is often overlooked as a necessity item, making American Water Works' cash flow among the safest in this portfolio.

Show me the money was also the name of the game for automaker Ford (NYSE:F), which divvied out a quarterly dividend of $0.125 per share today as well. This quarter's payout marks a 25% increase from the prior quarterly payout and is a high water mark in quarterly payments since 2001 for Ford. The automaker has really struck a chord in the U.S. and China with consumers thanks to its EcoBoost technology, which adds horsepower without sacrificing fuel economy thanks to built-in superchargers. As long as Ford maintains its attractive price points and continues to gain traction in China, there's really nothing that should stop it from revving even higher.

Finally, chipmaker Intel (NASDAQ:INTC) chose this weekend as the quarterly payday for investors, with shareholders receiving $0.225 per share. With a current yield of 3.6%, Intel is tied with Select Medical (NYSE:SEM) for the top yield in the Basic Needs portfolio. Intel has certainly had its fair share of struggles as it attempts to boost its research and development budget to bring new mobile processing and big data hardware offerings to market. However, these added costs also put a temporary cap on its near-term profitability. One way Intel has been rewarding shareholders for sticking with the company as it transitions into a mobile hardware provider is by kicking out healthy dividend payments fueled by its dominance in the slowly waning PC processing business. While this business may be shrinking, it should provide ample cash flow and dividend growth for years to come.

Preparing to get paid
Speaking of top-yielding companies within this portfolio, hospital and outpatient rehabilitation facility operator Select Medical went ex-dividend this past week in anticipation of paying shareholders on record as of today a $0.10/share dividend by next Monday, March 10. Select Medical remains an under-the-radar but inexpensive hospital operator that I suspect will benefit in a big way from the rollout of Obamacare. As more currently uninsured people gain insurance, the amount that Select Medical is forced to write-off as uncollectible revenue should shrink, giving it the opportunity to either purchase newer equipment in order to potentially gain a comparative advantage over its peers or to simply generate more cash flow, profits, and, perhaps, beefier dividends.

Finally, renewable energy-focused electric utility provider NextEra Energy (NYSE:NEE) went ex-dividend on Wednesday in anticipation of paying $0.725 per share to shareholders on March 17 who are on record as of Feb. 28. Similar to Ford, NextEra Energy boosted its payout by nearly 10% this quarter in accordance with its goal of paying out 55% of its earnings in the form of a dividend to shareholders. NextEra does carry a boatload of debt, but its big investments in alternative energy have put it light years ahead of its peers in terms of long-term cost reductions. I would be surprised if NextEra's dividend didn't continue to rise modestly on annual basis throughout the rest of the decade.

Here's the secret reason why the Basic Needs portfolio is set to outperform over the long run
One of the secrets that few finance professionals will reveal 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.

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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