MasterCard Dodges a Bullet While Intel Comes Clean

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 26, 2014 at 12:45PM

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.

Company

Cost Basis

Shares

Total Value

Return

Waste Management

$42.60

23.24

$1,007.92

1.8%

Intel

$23.22

42.64

$1,121.01

13.2%

NextEra Energy

$87.94

11.26

$1,086.14

9.7%

MasterCard

$64.557

15.30

$1,169.69

18.4%

Chevron 

$124.95

7.93

$978.32

(1.3%)

Select Medical 

$8.96

110.49

$1,607.63

62.4%

Ford

$17.50

56.57

$906.25

(8.5%)

American Water Works

$43.13

22.96

$1,093.13

10.4%

Procter & Gamble

$81.29

12.18

$980.73

(0.9%)

AvalonBay Communities

$133.95

7.39

$1,035.04

4.6%

Cash

   

$0.88

 

Dividends receivable

   

$216.83

 

Total commission

   

($100.00)

 

Original Investment

   

$10,000.00

 

Total portfolio value

   

$11,203.57

12%

S&P 500 performance

     

11.2%

Performance relative to S&P 500

     

0.8%

Sources: Yahoo! Finance, author's calculations.

For yet another week the S&P 500 chiseled away at the Basic Needs portfolio's lead, but considering that the index roared to another record high and these are generally low-volatility companies, I again am very pleased overall with its performance. As a reminder, this isn't a week-to-week competition, so I'm liable to be "beaten" by the S&P 500 many times over. However, over the long run, the solid dividend growth and steady cash flow exhibited by these 10 businesses should allow me to come out handily on top. Also keep in mind that half of this portfolio is due to pay out a dividend in the next two weeks, so we've got more cash coming our way!

Let's have a look at some of the biggest news events over the past week by first starting off with two companies declaring their quarterly dividends.

Avalonbay

Source: AvalonBay Communities.

Show me the money!
If you like money, then you're going to be mighty pleased with residential real estate investment trust AvalonBay Communities (NYSE:AVB), which on Wednesday declared a $1.16 per share payout for the second-quarter on July 15 to shareholders on record as of June 30. Although this dividend is consistent with what it paid out in the first quarter, it did raise its dividend 8.4% in January in accordance with its improved funds from operations. Rental communities may not seem like very exciting investments, but with housing inventories being kept purposefully low to boost home prices, and QE3 being wound down and leaving the door open for possible federal funds rate increases, the pricing power for apartment-home communities such as AvalonBay is only going to improve in the coming years. This remains a stealthily strong play in the REIT sector.

Also, alternative energy-focused electric utility NextEra Energy (NYSE:NEE) declared its regular quarterly dividend of $0.725 per share payable on June 16 to shareholders on record as of June 2. Similar to AvalonBay, this is consistent with its previous payout, although that, too, was raised before its first-quarter payout.

Perhaps the bigger news for NextEra was last Monday night's IPO paperwork filing to raise as much as $50 million for NextEra Energy Partners LP, its soon-to-be-public renewable power plants operating spinoff. According to the SEC filing, the new company will trade under the ticker symbol "NEP" and will hold interests in 10 wind and solar projects in North America totaling an output of about 990 MW. Based on the filing, NextEra Energy Partners may be allowed to acquire up to an additional 1,549 MW of assets from its parent company. Best of all, the new limited partnership with have tax credits built up that should allow it to skirt any significant federal taxation for about 15 years. This looks like another solid way for NextEra to unlock value for investors.

Meeting in the middle
Shareholders in payment processing facilitators MasterCard (NYSE:MA) and Visa can breathe a bit easier according to a late-week Wall Street Journal report, which claims that the Russian government has softened its stance against both MasterCard and Visa, and which should allow the two firms to continue to operate in Russia.

Www
Source: Hakan Dahlstrom, Flickr.

As an extremely quick recap, sanctions by the U.S. against Russia had Visa and MasterCard denying processing services to a handful of Russian banks. In response, Russia implemented sanctions and fines of its own against Visa and MasterCard. Based on the resolution, the two companies have agreed to create a "nationally important" operator over the next 18 months in Russia while conducting business as usual until then. Although a formal agreement has yet to be reached, this is clear progress compared with where the two sides were just a few weeks ago. Even though Russia represents only 2% or so of revenue potential for a company like MasterCard, that 2% is enough to make investors sleep easier at night.

Let the good times flow
To complete a puzzle you have to painstakingly put the pieces together one at a time. The water utility and wastewater industry may be far from exciting, but American Water Works (NYSE:AWK) continued to put the pieces of the puzzle together this past week, as its subsidiary Kentucky American Water announced its intent to purchase Millersburg Water and Wastewater Systems, which services about 500 water customers and 300 sewer system customers. It's not a huge deal by any means, but inelastic prices that slowly increase over time, combined with acquisitions, are the primary source of growth for American Water Works. As a low-volatility name with a growing dividend, this is a company for risk-averse income investors to get on their radar.

Images

Source: Intel Free Press, Flcikr.

Going green and keeping clean
Finally, chipmaker Intel (NASDAQ:INTC) on Thursday released its first-ever conflict minerals report to the Securities and Exchange Commission and issued its progress report on corporate responsibility. As noted in the press release, Intel was the nation's largest voluntary purchaser of green power, according to the Environment Protection Agency, with more than 3.1 billion kWh of green power meeting all of Intel's electricity usage. Intel also noted $220 million in water conservation steps taken since 1998. Also, as was the basis for its report, Intel backed its claim that the minerals used in its production comes from conflict-free mines. For socially conscious investors, this report has to add a bit of reassurance to a company that's already well known for its green efforts.

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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, Visa, and Waste Management. It also recommends Chevron and Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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