U.S. Court Ruling Weighs on MasterCard, While Ford Ponders Production Cut in Russia

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 24, 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

$946.57

(4.4%)

Intel

$23.22

42.64

$1,073.25

8.4%

NextEra Energy

$87.94

11.26

$1,064.86

7.5%

MasterCard

$64.557

15.30

$1,162.65

17.7%

Chevron 

$124.95

7.93

$916.95

(7.5%)

Select Medical 

$8.96

110.49

$1,287.21

30%

Ford

$17.50

56.57

$875.14

(11.6%)

American Water Works

$43.13

22.96

$1,034.58

4.5%

Procter & Gamble

$81.29

12.18

$948.58

(4.2%)

AvalonBay Communities

$133.95

7.39

$959.52

(3.1%)

Cash

   

$0.88

 

Dividends receivable

   

$198.74

 

Total commission

   

($100.00)

 

Original Investment

   

$10,000.00

 

Total portfolio value

   

$10,468.93

4.7%

S&P 500 performance

     

9.2%

Performance relative to S&P 500

     

(4.5%)

Source: Yahoo! Finance, author's calculations.

The Basic Needs Portfolio only managed about a 0.3% gain for the week, which wasn't quite enough to keep pace with the S&P 500. However, given that this is a portfolio geared for long-term outperformance, as long as we're heading in the right direction I'm not too concerned.

In terms of news-driven events we had a little bit of everything, but as always we'll start with the latest dividend updates.

Show me the money!
Starting us off this week is refuse and recycling giant Waste Management (NYSE:WM), which on Friday divvied out $0.375 per share to investors, a $0.01 jump from its payout in the previous quarter. Waste Management's business has been hit recently by weaker commodity prices that hurt its recycling margins, along with consolidation in the refuse business which is also pressuring margins. However, as the clear market-share leader in refuse, a necessity-based business, it continues to wield impressive pricing power that can be used to slowly grow its bottom line. Waste Management's 3.6% yield should remain an attractive lure for income-seeking investors.

Meanwhile, chipmaking giant Intel (NASDAQ:INTC) is getting ready to put some money in investors' pockets. On Wednesday, Intel declared a quarterly dividend of $0.225 per share -- consistent with its previous payout -- that will be payable on June 1 to shareholders of record as of May 7. Intel is going through a major transition as its PC-processing division shrinks that has required it to devote billions to researching and developing mobile and cloud-based products. Thankfully, because it holds such dominant share in the PC-processing industry, it has been able to rely on beefy margins and tighter cost controls to easily fuel a bountiful payout. I'd be surprised if Intel were unable to move this payout up to $1 on an annual basis within the next two years.

Capping profits
Shares of payment processing facilitator MasterCard (NYSE:MA) swooned on Friday after the U.S. Court of Appeals for the District of Columbia Circuit upheld a 2011 ruling by the Federal Reserve on the maximum fees that debit facilitators could charge per debit-card transaction. According to the ruling, debit-card fees will be capped at $0.21 per transaction, as well as a few additional cents in some cases to cover the potential for fraud. There is still the opportunity for credit payment facilitators to appeal this decision, which seems like a given considering that debit-card growth has soared with underbanked consumers following the recession. In addition, the Fed itself may need to redo its calculations and ensure that $0.21 is the appropriate fee cap. I don't view this as particularly damaging to MasterCard, given that rival Visa has the larger U.S. debit-card market share, and continue to believe that emerging market growth is what investors should be eyeballing.

Sanctions hit home?
Following through on their threats, the United States and the EU imposed additional sanctions on Russia last week after it officially annexed Crimea from Ukraine. As part of those economic penalties, automaker Ford (NYSE:F) is considering whether to reduce or halt production at a plant near St. Petersburg that makes the Focus and the Mondeo. Russia has been a hotbed growth opportunity for Ford, but with China outperforming and the European market finally rebounding, I don't see these sanctions against Russia affecting the automaker's bottom line in a significant way. It's certainly a situation to watch, but I wouldn't lose sleep over it.

Construction delay
Finally, on Thursday residential real estate investment trust AvalonBay Communities (NYSE:AVB) reported that its AVA Theater District project in Boston had suffered a partial collapse during construction. The community had been scheduled to open for occupancy in the third-quarter of 2015, but will likely be pushed out one or two quarters, according to analysts at Wells Fargo. While this isn't good news, like the aforementioned MasterCard and Ford stories it's not devastating, either. AvalonBay ended the year with 81,522 apartment homes across 12 states and the District of Columbia, meaning it has plenty of avenues to boost occupancy and rent rates in the meantime. With lending rates potentially set to rise sooner rather than later, residential REITs such as Avalon look to be in great shape.

If dividends are your thing, then you have to check out these nine high-yielding selections from our analysts
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.

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, Waste Management, and Wells Fargo. 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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