Intel Crushes Estimates While Ford Plans to Dominate New Continents

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!

Jul 21, 2014 at 6:45PM

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

$1,032.79

4.3%

Intel

$23.22

42.64

$1,436.97

45.1%

NextEra Energy

$87.94

11.26

$1,112.26

12.3%

MasterCard 

$64.557

15.30

$1,185.75

20%

Chevron 

$124.95

7.93

$1,033.99

4.4%

Select Medical 

$8.96

110.49

$1,725.85

74.3%

Ford

$17.50

56.57

$1,002.42

1.3%

American Water Works 

$43.13

22.96

$1,124.35

13.5%

Procter & Gamble

$81.29

12.18

$981.10

(0.9%)

AvalonBay Communities

$133.95

7.39

$1,088.69

10%

Cash

   

$0.88

 

Dividends receivable

   

$285.60

 

Total commission

   

($100.00)

 

Original Investment

   

$10,000.00

 

Total portfolio value

   

$12,010.65

20.1%

S&P 500 performance

     

15.7%

Performance relative to S&P 500

     

4.4%

Source: Yahoo! Finance, author's calculations.

The S&P 500 isn't the only one breaking down records here! The Basic Needs portfolio surged this past week and is now up more than 20% since this experiment began nearly one year ago, handily outpacing the S&P 500 by 4.4%. We're starting to see how strong cash flow and steady/growing dividends can make for the perfect combination over the long run to outrun the S&P 500.

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

Show me the money!
If you like money -- and who doesn't -- you'll be pleased to know that real estate investment trust AvalonBay Communities (NYSE:AVB) widened our pockets on Tuesday by paying shareholders $1.16 per share. In order to receive this payment you needed to be a shareholder on record as of June 26. AvalonBay's projected yield of 3.3% looks extremely safe, considering that a federal funds rate hike from the Federal Reserve is drawing near, which may serve to keep on-the-edge home-buyers renting instead as mortgage rates rise. We also have weak mortgage loan originations data confirming this trend. For AvalonBay this means high occupancy rates and improving rental pricing power, which is music to the ears of shareholders.

Images

Source: Mike Mozart, Flickr.

Although consumer goods giant Procter & Gamble (NYSE:PG) didn't line our pockets just yet, it did go ex-dividend this past week, removing $0.64 per share from the company's share price in anticipation of receiving this payment on Aug. 15 for shareholders on record as of this past Friday. Procter and Gamble has a remarkable 58-year streak of boosting its dividend, with only a handful of listed companies being able to say they've done better. The reason P&G's payout is so safe is simply because it offers a number of goods that consumers need regardless of whether the economy is in great shape or in the dumps. People need household goods, meaning P&G has little incentive to ever discount its products. This results in predictable gross margins and impressive pricing power.

Intel's phenomenal Q2
Perhaps the biggest news event this week was chipmaker Intel's (NASDAQ:INTC) second-quarter earnings results. For the quarter Intel delivered revenue growth of 8% to $13.83 billion as its gross margin jumped to 64.5% and adjusted EPS improved to $0.55, up 41% from the $0.39 reported in the year-ago quarter. Even after announcing a guidance boost a few weeks ago Intel still managed to hurdle Wall Street's EPS expectations by $0.02 as enterprise PC demand remains strong and its inroads into mobile and next-generation cloud and big data center hardware continue to improve.

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Source: Yosomono, Flickr.

But that was just the half of it. Intel also boosted its full-year forecast to include revenue growth of approximately 5%, or $55.3 billion in sales – keep in mind the expectation about a month ago was for flat year-over-year sales – and gross margin of approximately 63%. This was well ahead of Wall Street's expectations, as was the company's announcement that it was increasing its existing share buyback agreement by a stunning $20 billion. With its share price at its highest point in more than a decade and Intel finally seeing the fruits of its heavy research and development spending, the sky literally appears to be its limit for the time being.

Ford touts expansion plans
In an effort to expand into faster growing emerging markets, automaker Ford (NYSE:F) announced on Thursday its intent to introduce 25 (yes, twenty-five!) new vehicles into the Middle East & Africa regions by 2016, including the company's iconic Mustang.

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2015 Ford Mustang, Source: Ford.

Furthermore, with these regions beginning to develop new breeds of middle-class consumers looking for their first taste of luxury, Ford will also focus on bringing a number of its newer technologies to the Middle East & Africa, such as its fuel-efficient EcoBoost engine, its Sync in-car connectivity solutions, and its driver-assist technologies.

I believe this a necessary move by Ford which is seeing tremendous growth in overseas markets like China and India. Much of the Middle East & Africa is still largely untapped and unsaturated when it comes to automobiles, so there's certainly multidecade growth potential. I'm a bit concerned that 25 vehicles may be too ambitious a target, but given the breadth of the region it could very well be doable.

Images

Source: Peddhapati, Flickr.

NextEra continues its pursuit
Lastly, a Bloomberg report on Thursday shows that electric utility NextEra Energy's (NYSE:NEE) pursuit of privately held Energy Future's Oncor unit is only intensifying. According to the report, NextEra and Energy Future's creditors have revised a restructuring proposal that values its Oncor unit at $500 more than its prior valuation. Energy Future filed for bankruptcy protection in April in order to restructure nearly $50 billion in debt and NextEra is attempting to return more value to Energy Future's creditors in order to snag the highly profitable regulated electricity business in Texas. It's tough to say if this sweetened deal will sway Energy Future's creditors, but if NextEra can manage to purchase Oncor, I would expect it to be immediately accretive to its bottom line.

See which high-yield dividend stocks our top analysts recently singled out!
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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