Intel Boosts Its Guidance and Ford Gets Another Black Eye

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!

Jun 16, 2014 at 6:05PM

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

$1,022.56

3.3%

Intel

$23.22

42.64

$1,273.66

28.6%

NextEra Energy

$87.94

11.26

$1,089.74

10.1%

MasterCard 

$64.557

15.30

$1,161.88

17.6%

Chevron

$124.95

7.93

$1,009.17

1.8%

Select Medical 

$8.96

110.49

$1,660.66

67.7%

Ford

$17.50

56.57

$936.80

(5.4%)

American Water Works 

$43.13

22.96

$1,100.70

11.2%

Procter & Gamble 

$81.29

12.18

$970.02

(2%)

AvalonBay Communities 

$133.95

7.39

$1,034.75

4.5%

Cash

   

$0.88

 

Dividends receivable

   

$268.31

 

Total commission

   

($100.00)

 

Original Investment

   

$10,000.00

 

Total portfolio value

   

$11,529.13

15.3%

S&P 500 performance

     

13.2%

Performance relative to S&P 500

     

2.1%

Source: Yahoo! Finance, author's calculations.

Following the S&P 500's first pullback in weeks, the Basic Needs portfolio added to its lead over the index, relying on received dividend payments and an important earnings forecast guidance boost to pull further ahead. Overall, though, the portfolio shed about 0.2% of its value as previous top performers such as MasterCard and Select Medical came under a bit of profit-taking pressure. We can relish in a small victory over the S&P 500 this past week, but the goal of this portfolio is long-term outperformance. And so far this group of 10 stocks looks primed to win the battle over the long run.

Show me the money!
Probably the most important aspect of the Basic Needs portfolio, and the primary difference maker between it and the S&P 500 thus far, are the steady and/or growing dividend payments received from these 10 stocks. Through just 10.5 months, the portfolio has received almost $270 in dividends, meaning it is approaching a 3% annual yield. Not too shabby given the diverse mixture of industries represented.

Integrated oil and gas giant Chevron (NYSE:CVX), as indicated last week, paid out its $1.07 per share dividend this past Tuesday to shareholders of record as of May 19. In addition to netting a projected $4.28 per share in payouts per year, shareholders have also enjoyed a sudden boost in crude prices thanks to political tensions in Iraq. While higher crude prices tend to work against Chevron's refinery business by tightening its spreads, they benefit its exploration and drilling segments and provide ample opportunity for midstream companies to transport and store liquid assets. As one of the largest vertically integrated oil companies, Chevron and its shareholders are basking in triple-digit per-barrel prices.

Also breaking out its wallet was alternative-energy-focused electric utility NextEra Energy (NYSE:NEE), which today doled out $0.725 per share to shareholders of record as of June 2. NextEra has made it clear on multiple occasions that it intends to pay out roughly 55% of its earnings in dividends to investors while reinvesting the remainder into the business. The end result is a healthy 3% yield for investors.

Images

Source: Maureen, Flickr.

On top of its dividend, NextEra also announced a partnership with EQT to develop a 330-mile natural-gas pipeline that will eventually connect the Marcellus and Utica shale deposits with southeastern U.S. markets. Per a report last week from my fellow Fool Justin Loiseau, EQT will be the primary stakeholder and operator of the pipeline in the joint venture, which could deliver up to 2 billion cubic feet of natural gas per day once the project comes online in the fourth quarter of 2018. 

Images

Source: Lungstruck, Flickr.

A chip off the old block
Who said the PC is dead? Following market close on Thursday, chipmaker Intel (NASDAQ:INTC) boosted its second-quarter and full-year guidance after announcing that PC demand by businesses has been stronger than expected. Specifically, Intel guided its second-quarter revenue to a range of $13.4 billion-$14 billion, from the prior guidance of $12.5 billion-$13.5 billion, and boosted the midpoint of its gross margin forecast by 1 percentage point to 64%. Also, Intel upped its Q2 research and development spending by $100 million to $4.9 billion, with a slight increase in its effective tax rate to 28% from a prior expectation of 27%.

For the full year, Intel now expects positive revenue growth versus a prior projection of flat growth; it also anticipates that gross margin will come in at the upper half of its previous range, which was a midpoint around 61%. This guidance just goes to show that you can never quite count out Intel, and that its cash-generating capabilities are more than enough to sustain its dividend while also providing ample capital for investing in the latest mobile and cloud technologies.

Ford skids out
As if recall mania hasn't been enough for automakers and consumers to endure over the last couple of months, Ford (NYSE:F) found a new way to skid out of control on Thursday when it announced that it had lowered the fuel economy ratings on six vehicles after discovering an internal error in its calculations. The six vehicles affected include the Fiesta, Fusion, C-Max, Energi, and even the Lincoln MKZ.

Images
2014 Ford Fiesta. Source: Ford.

In response to the corrections, in which some of Ford's hybrid models lost between three and seven miles per gallon off their estimated combined mpg, Ford will make goodwill payments to consumers ranging from $125 to $1,050 depending on the make of the vehicle and whether it is leased or owned. While this isn't a crippling blow for Ford, it's another black eye for an industry that has taken far too many punches this year.

One person's trash...
Lastly, Deutsche Bank last Monday initiated coverage on refuse and recycling giant Waste Management (NYSE:WM) with a hold rating and a $47 price target, implying roughly 5% upside based on its previous closing price. Deutsche noted Waste Management's positives, such as its strong market position and management team. However, Deutsche also considers the business to be mature -- a fancy word meaning its growth will slow -- which it suspects will lead to low-single-digit EPS growth and leave shares range-bound.

As always, I advise generally ignoring analyst ratings, as they rarely have much bearing on our long-term investing thesis. Deutsche is probably right about Waste Management's growth prospects in the near term, but that's primarily a function of weak commodity prices related to its recycling business. Waste Management's refuse pricing power remains unparalleled, and its ventures into energy production using landfill gases and a long-term rebound in metal prices might make shares look extremely cheap in just a few short years.

Other great high-yield ideas from our top analysts
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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