NextEra Shareholders Collect a Boosted Payout While Ford Surges in Europe

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 17, 2014 at 6:02PM

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

$948.42

(4.2%)

Intel 

$23.22

42.64

$1,044.68

5.5%

NextEra Energy

$87.94

11.26

$1,061.37

7.2%

MasterCard

$64.557

15.30

$1,168.00

18.3%

Chevron 

$124.95

7.93

$904.81

(8.7%)

Select Medical

$8.96

110.49

$1,301.57

31.5%

Ford

$17.50

56.57

$853.08

(13.8%)

American Water Works

$43.13

22.96

$1,046.06

5.6%

Procter & Gamble

$81.29

12.18

$961.98

(2.8%)

AvalonBay Communities 

$133.95

7.39

$958.85

(3.1%)

Cash

   

$0.88

 

Dividends receivable

   

$190.02

 

Total commission

   

($100.00)

 

Original Investment

   

$10,000.00

 

Total portfolio value

   

$10,439.72

4.4%

S&P 500 performance

     

7.7%

Performance relative to S&P 500

     

(3.3%)

Source: Yahoo! Finance, author's calculations.

Weeks don't come any flatter than the Basic Needs Portfolio this week, which gained $0.24 -- yes, 24 cents -- on the week despite a drop of nearly 2% for the broad-based S&P 500. This portfolio certainly wasn't designed to keep up with an exponential move higher in the S&P 500, but we can see how much of a rock these solid dividend and cash-flow stocks can be when the market does have a rough week.

As for data, we had a little bit of everything, so let's dive right in.

Show me the money!
When you have a portfolio filled with premium dividend-payers, there's no way you can begin the week without first looking at which companies put money in our pockets. That lone honor this week goes to electric utility NextEra Energy (NYSE:NEE), which paid out $0.725 per share to shareholders as of today. This dividend is nearly a 10% boost from its prior payout and is consistent with its plans to return about 55% of its operating income to shareholders in the form of a dividend. NextEra is definitely carrying around a bit more debt than many of its peers due to its large investment in alternative energies such as wind, solar, and hydroelectric energy, but these energy sources are also poised to give NextEra a long-term comparative cost advantage over its peers. Long story short, I'd expect its dividend to continue to head modestly higher over the coming years.

Driving over the competition
On Friday, automaker Ford (NYSE:F) continued the parade of positive news from its February data by reporting an 11.6% increase in vehicle sales in Europe, which handily outpaced the 8% growth that the industry averaged in the region. The big driver was commercial vehicle sales, which rose just shy of 16% and helped inch Ford's share of the European commercial vehicle market to 9.7%, its highest level since 1998. A rebound in Europe is far from a sure thing at the moment, but Ford is hitting all angles of the market, both consumer and commercial, with attractive price points, solid styling, and much improved fuel-efficiency via its EcoBoost engine technology. Following its 13th consecutive month of retail share growth in Europe, Ford remains a company that's high up on my personal watchlist as a real-money buy candidate.

The buddy system
Two heads are better than one according to payment processing archrivals MasterCard (NYSE:MA) and Visa, which announced that they would be teaming up to come up with long-term solutions to improve payment security following the debacle that plagued Target this holiday season. This collaboration plans to first focus on EMV chip adoption, but also plans to address point-to-point encryption and tokenization according to their joint press release. Both MasterCard and Visa have double-digit growth potential and payment security is perhaps the one major risk that has the potential to slow their growth trend. With the companies putting their heads together, I'm confident that what happened at Target will be more of a rare occurrence than the norm. 

A smooth transition
Water utility American Water Works (NYSE:AWK) flowed to another all-time high on Friday following the Wednesday evening announcement that it was hiring Linda Sullivan as its new chief financial officer. Sullivan was previously the CFO of Southern California Edison, so she brings a moat of experience with her to the new role, which she'll officially take over on May 9, 2014. Also on that day, Susan Story will move from her current CFO position into the CEO role as she replaces current CEO Jeff Sterba, who is retiring. The move this week, aside from being a defensive pop during an otherwise down week for the markets, also appears to be a signal of confidence from investors in American Water Works' succession plans.  

Bringing its shares back home
Finally, on Tuesday hospital and outpatient rehabilitation operator Select Medical (NYSE:SEM) announced that it had completed a private placement totaling $110 million of 6.375% senior notes, which are due in 2021. The intent of this cash raise is to use the proceeds and cash on hand to repurchase 10 million shares of common stock at $10.95 per share from Welsh, Carson, Anderson & Stowe IX, L.P., and WCAS Capital Partners IV, L.P. It may be a roundabout way of bringing shares home, but this debt offering to repurchase shares should help improve shareholder value so long as its existing cash flow covers the newly issued senior notes (which I believe it will).  

Nine unique dividend-paying stocks handpicked by our top analysts
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, Visa, 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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