Chevron Offers a Mixed Q2 Update; Procter & Gamble Receives an Untimely Downgrade

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

$1,030.46

4.1%

Intel 

$23.22

42.64

$1,332.50

34.6%

NextEra Energy 

$87.94

11.26

$1,114.40

12.5%

MasterCard

$64.557

15.30

$1,160.20

17.5%

Chevron

$124.95

7.93

$1,018.77

2.8%

Select Medical 

$8.96

110.49

$1,710.39

72.8%

Ford

$17.50

56.57

$988.28

(0.2%)

American Water Works

$43.13

22.96

$1,112.18

12.3%

Procter & Gamble

$81.29

12.18

$988.53

(0.2%)

AvalonBay Communities

$133.95

7.39

$1,063.13

7.4%

Cash

   

$0.88

 

Dividends receivable

   

$277.03

 

Total commission

   

($100.00)

 

Original Investment

   

$10,000.00

 

Total portfolio value

   

$11,796.75

18%

S&P 500 performance

     

15.1%

Performance relative to S&P 500

     

2.9%

Source: Yahoo! Finance, author's calculations.

Although the Basic Needs portfolio gave up a fraction of its value this week (0.1%), the broader S&P 500 lost considerably more, pushing the Basic Needs portfolio to its largest outperformance of the S&P 500 since this experiment began a little more than 11 months ago.

What's more impressive is that only two stocks are in the red -- and both are just pennies away from breaking into positive territory. If we account for dividends received, then every stock has returned some form of positive value since we "purchased" them -- and that will often lead to few, if any, complaints.

As always, let's start off with this week's pressing dividend news.

Show me the money!
Although payment processing facilitator MasterCard (NYSE: MA  ) didn't directly put any money in our pockets (as of yet), it did go ex-dividend on Monday with shareholders on record as of July 9, who are expected to receive $0.11 per share on Friday, Aug. 8. MasterCard's dividend isn't much to look at for the time being, but considering that it boosted its payout 83% and drastically hiked its long-term share repurchase agreement in December, and also has a double-digit growth opportunity in emerging markets for decades to come, I'm not exactly sweating its tiny 0.6% yield.

2015 Ford Escape. Source: Ford

Automaker Ford (NYSE: F  ) announced on Thursday that it would be paying a third-quarter dividend of $0.125 per share on Sept. 2 to shareholders on record as of Aug. 1. This payout is unchanged from its sequential second quarter, but it is 25% higher than the $0.10 Ford paid out to shareholders in the year-ago period. Ford's payout is currently sitting at its highest level in 13 years and is well-deserved, considering the progress Ford has made in Europe's commercial market, within China and India, and in the economy car and SUV market within the U.S. since the recession. With an impressive long-term vision and solid execution lately, Ford continues to impress me with each step.

Chevron drills away
Investors in integrated oil and gas giant Chevron (NYSE: CVX  ) once again experienced indigestion after the company provided its interim update for the second quarter on Thursday evening. On one hand, improved liquids pricing and expanded production in the U.S., coupled with fewer impairment charges and the sale of overseas assets, look set to push Chevron's EPS higher from the sequential first quarter. On the flip side, foreign-exchange losses are only getting worse, and the company's downstream operations are looking at a flat quarter when compared to Q1.


Source: Kool Cats Photography via Flickr.

It's no surprise that Chevron lost value on Friday, considering that investors expected higher oil prices to have a stronger impact on its bottom-line results. But Chevron also didn't give us a specific EPS number to latch onto, either. At just 11 times forward earnings, Chevron still remains an attractive long-term buy-and-hold company. 

Source: Eric Norris, Flickr

American Water gets bigger
They normally fly right under most investors' radars, but water utility giant American Water Works (NYSE: AWK  ) announced, via one of its subsidiaries, the purchase of Mt. Ebo Water Systems for an undisclosed amount on Thursday. The purchase will add 400 water and wastewater customers in Putnam County, N.Y., and it demonstrates once again just how easy it is for American Water Works and its subsidiaries to grow by picking apples off the branch. Because its business is largely regulated, investors are rarely surprised by American Water Works' results, which makes it a low-volatility play on a finite resource.

The dreaded downgrade
Lastly, global consumer goods giant Procter & Gamble (NYSE: PG  ) received a dreaded downgrade on Friday from Wells Fargo analyst Chris Ferrara. Ferrara chopped P&G's price target to a range of $85-$87 from a prior forecast of $88-$90 and lowered his rating on the company to market perform from outperform. Specifically, Ferrara pointed to increasing competition, weakening U.S. sales trends, and new product launch execution risk as a reason for the downgrade.

It's no secret that Procter & Gamble is growing at a snail's pace relative to the market, and that returning CEO A. G. Lafley is in the process of cleaning house, so to speak. As P&G has shed noncore assets we've witnessed its cash position grow and we've also seen an uptick in volume unit growth outside the U.S. So long as Lafley keeps Procter & Gamble focused on its emerging market potential, while in turn ensuring that its U.S. name-brand products remain competitive, then I see no reason why P&G won't head higher over the long run.

The key to long-term outperformance is high-quality dividends.
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.


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