NextEra Energy Blows Past Estimates While MasterCard Issues Surprising Outlook

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!

May 5, 2014 at 6:10PM

Last 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.


Cost Basis


Total Value


Waste Management 










NextEra Energy















Select Medical










American Water Works





Procter & Gamble 





AvalonBay Communities 









Dividends receivable




Total commission




Original Investment




Total portfolio value




S&P 500 performance



Performance relative to S&P 500



Source: Yahoo! Finance, author's calculations.

There will be few complaints this week, with the Basic Needs portfolio outperforming the benchmark S&P 500 once again and pulling out to its biggest lead since this experiment began. Strong earnings reports, which we'll get to below, were once again the primary driver, although I'll remind investors that this is a long-term bet on basic-needs stocks outperforming the S&P 500, rather than a week-to-week competition.

Let's begin with a surprisingly strong dividend increase and then dive right into four separate earnings reports, as well as monthly auto sales figures from Ford (NYSE:F).

Show me the money!
Do you like extra money? Water utility American Water Works (NYSE:AWK) is betting you do, which is why on Tuesday the company announced that it was boosting its dividend by 11% to $0.31 per share, payable on June 2. Since its debut in 2008 American Water Works has increased its payout each year. The payout remains consistent with the company's practice of paying out 50%-60% of its net income per year and boosted its new yield to 2.7%. While organic growth can be slow in the water utility sector due to being at the mercy of regulated rate increases, American Water Works' strategic acquisitions are clearly having a substantially positive impact for shareholders.

Charging forward
Jumping right into earnings reports for the week, payment processing facilitator MasterCard (NYSE:MA) on Thursday announced strong first-quarter growth (again!) but cautioned that ongoing sanctions against Russia, where it has about 2% total revenue exposure, could weaken its results.

For the quarter, MasterCard delivered ex-U.S. volume growth of 17%, a 14% increase in processed transactions, and produced 14% higher net revenue to $2.2 billion. Profit of $870 million, or $0.73 per share, was also better than expected. What caught investors most by surprise was the fact that although its Russian revenue could be at risk, MasterCard stuck by its full-year forecast. I personally believe there's double-digit growth potential here every year throughout the remainder of the decade due to untapped emerging markets, even beyond Russia, and I would encourage you not to lose sleep over sanction concerns that are more than likely confined to the short term.

Yielding big gains
Investors loved what they heard from electric utility NextEra Energy (NYSE:NEE) on Wednesday when the company reported revenue of $3.67 billion, an 11% increase from the year-ago quarter, and $1.26 in EPS, well ahead of the $1.07 that Wall Street was expecting. What we're seeing is the lower cost structure of its vast alternative energy complexes finally beginning to pay off for shareholders.

In addition, NextEra on Wednesday also filed an S-1 registration with the SEC to form a "yieldco" to be comprised of its renewable power assets. The yieldco would be spun off into a separate tradable company, and since most of their revenue comes from long-term power-purchasing agreements, shareholders would likely benefit with a substantial dividend. I'd strongly suggest keeping our eyes peeled on this exciting development.

A clean bill of health
Hospital and outpatient rehabilitation center operator Select Medical, which is the shining star of this portfolio, kept the good times rolling Thursday night when it reported better-than-expected first-quarter results.

For the quarter, Select Medical produced a 1.7% increase in net revenue to $762.6 million despite being hit by a 2% reduction in Medicare reimbursements. Net income dipped slightly year-over-year, but adjusted EPS remained constant at $0.25. Comparatively speaking, Wall Street was only expecting $0.23 in EPS, so this was a nice cost-cutting-based bottom-line beat. Select Medical also boosted its share repurchase program by an additional $150 million.

Looking ahead, due to the company's refinancing activities and debt extinguishment, it now anticipates full-year adjusted EPS of $0.89-$0.97 compared to its previous guidance of $0.84-$0.93 while maintaining its previous revenue guidance of $3.05 billion-$3.15 billion. All told, with the exception that whoever wrote up its press release doesn't understand the concept of paragraphs, it was a solid report that demonstrates the positive benefit that Obamacare appears to be having on the company. 

Chevron gets drilled
Of course, Chevron's (NYSE:CVX) first-quarter results were the opposite of impressive, but they also weren't a big surprise, with the integrated oil giant warning weeks in advance that this would be a challenging quarter.

During the quarter Chevron delivered a 27% decline in net income to $4.5 billion with refining profits inching up slightly more than 1%. Upstream profits, however, were slammed as daily production slowed by more than 2% to 2.59 million net barrel of oil equivalents worldwide. Chevron has also been investing heavily in exploration projects around the world, and those higher costs have worked as a hindrance to its bottom-line profits in recent quarters. Ultimately, Chevron's cash flow is impressively strong, and its global assets are diverse and practically unparalleled. If there was any question about its financial well-being, the company's decision to raise its dividend by 7% to $1.07 (a new yield of 3.4%) should put any of those fears to rest.

Ford's mixed results
Finally, automaker Ford posted mixed April U.S. auto sales results with unit volume dipping 1% from the prior year period to 211,126 vehicles. But sales of its F-Series pickups zoomed to more than 63,000 units, their best April total in eight years. Best of all, EcoBoost engine-based F-Series pickups accounted for 42% of those sales demonstrated just how important its fuel-saving engine that doesn't sacrifice power has become to Ford's future in both its fleet of cars and trucks.  

Ford will face some tough comparisons in the early portion of this year, given how strong retail sales were in 2013 and how much more cooperative the winter weather was. Over the long run, though, Ford's rollout of a number of new models and the increased expense related to these rollouts should more than pay off for investors.

Your search for the market's top dividend stocks doesn't have to end here
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just 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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