Select Medical Soars, Intel Chips In, and Chevron Outlines Its Growth Strategy

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

$1,038.36

4.9%

Intel

$23.22

42.64

$1,164.92

17.7%

NextEra Energy 

$87.94

11.26

$1,096.27

10.7%

MasterCard 

$64.557

15.30

$1,169.69

18.4%

Chevron

$124.95

7.93

$973.72

(1.7%)

Select Medical

$8.96

110.49

$1,673.92

69.1%

Ford

$17.50

56.57

$930.01

(6.1%)

American Water Works

$43.13

22.96

$1,116.09

12.7%

Procter & Gamble 

$81.29

12.18

$984.02

(0.6%)

AvalonBay Communities 

$133.95

7.39

$1,048.20

5.9%

Cash

   

$0.88

 

Dividends receivable

   

$251.66

 

Total commission

   

($100.00)

 

Original Investment

   

$10,000.00

 

Total portfolio value

   

$11,447.74

14.5%

S&P 500 performance

     

12.5%

Performance relative to S&P 500

     

2%

Source: Yahoo! Finance, author's calculations.

In a week where the broad-based S&P 500 powered higher by more than 1%, I certainly wouldn't have expected this grouping of low-beta names to keep up. However, with the collection of not one, not two, but four quarterly dividend payments this week, along with a solid weekly performance from a number of key companies within the Basic Needs portfolio, this bundle of stocks is now sitting at its highest outperformance since inception on Aug. 2, 2013 relative to the S&P 500. Of course, you should keep in mind this experiment was conducted to demonstrate the long-term outperformance of basic-needs stocks, and not their week-to-week performance, but it's OK to bask in a victory once in a while.

Because dividend payments were the primary reason this portfolio crushed the S&P 500 this week, let's have a look at which four companies just put more money in our pocket.

Show me the money!
I don't see how we can't start with the star of the portfolio through the first 10 months: hospital and outpatient rehabilitation center operator Select Medical (NYSE: SEM  ) . Up 69.1% through the first 10 months, Select Medical has benefited from tight cost controls and better-than-expected Obamacare enrollment, which could help lower the amount of revenue it writes off as uncollectible due to uninsured and underinsured patients. On Wednesday, though, it was all fun and games for shareholders who received a $0.10-per-share quarterly payment from Select Medical. When this experiment began Select Medical was the highest-yielding stock in the portfolio, but with its share price having risen so much, its yield is now "only" 2.6%. But I doubt shareholders will complain very much, all things considered.

Chipmaker Intel (NASDAQ: INTC  ) , one of the current dividend kingpins with its 3.3% yield, also brightened our week by paying out a $0.225/share quarterly dividend as of yesterday. It's possible that Intel's dividend growth could slow in the coming years as it devotes a lot of capital to research and development in order to catch-up to its peers in producing mobile-based processors. The early results of Intel's mobile efforts have been mixed, with Intel showing moderate success in tablets but disappointing processor wins in smartphones. The good news, though, is that Intel still maintains the lion's share of the slowly shrinking PC processor market, so the company has plenty of positive free cash flow to fund its dividend and R&D, and it's already seeing robust gains from its big data center hardware products. This is the type of business you can buy and check back in on five years from now without worrying much, if at all.

Source: American Water Works.

Keeping with our theme of letting the good times flow, water utility American Water Works (NYSE: AWK  ) is paying out a freshly boosted $0.31/share today to shareholders who were on record as of May 12. The water utility business is hardly what I would call exciting, but it's a basic necessity of life, and as such comes with perks for the company which include premium pricing power. Although the industry is regulated and American Water Works can't raise its prices willy-nilly, it can slowly make acquisitions to add to its customer base while taking advantage of price increases in select regions around the country. By staying geographically diverse, American Water Works can continue to push its payout even higher in future years.

Finally, automaker Ford (NYSE: F  ) stepped on the gas and put its beefier $0.125-per-share quarterly payout in the pockets of shareholders as of today. With CEO Alan Mulally witnessing strong growth in China and a stabilization in Ford's European operations, the decision to recently boosts its payout to a 13-year high made perfect sense. 

Unfortunately, it wasn't a perfect week for Ford despite the fact that it finished higher than where it started. On Thursday, Ford announced that it was going to join the recall parade, issuing a recall of a whopping 1.4 million vehicles to fix steering, rust, and floor mat issues. In total, the recall covers 915,000 2008-2011 Ford Escape and Mercury Mariner SUVs; about 196,000 Ford Explorers from 2011-2013; some 196,600 2010-2014 Ford Taurus sedans; and 82,500 Ford Fusion, Mercury Milan, Lincoln Zephyr, and Lincoln MKZ cars from the 2006-2011 model years. While that's hardly good news, the fact that Ford is dealing with these issues now, rather than waiting, could help distance it from General Motors and its current recall woes.

Gushing with excitement
Lastly, in the only nondividend news event of the week, integrated oil and gas giant Chevron (NYSE: CVX  ) held its annual meeting of shareholders on Wednesday and outlined some of its financial goals moving forward.


Source: Christopher Griner, Flickr.

As noted by Chevron's vice chairman, George Kirkland, the company is on track to reach 3.1 million barrels of oil-equivalent production per day by 2017, which would represent 20% growth from 2013. In addition, Kirkland mentioned that Chevron has more than 70 projects expected to get under way before the end of the decade. Its Gorgon and Wheatstone projects, which are the heart and soul of its future LNG production, are expected to come online by mid-2015 and early 2016. Furthermore, expenditures for 2014 will total $39.8 billion, which is actually a $2 billion drop from 2013, possibly leading to juicier profits if commodity prices cooperate. All told, despite weakness from its refining operations it looks like business as usual for Chevron.

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