Why Basic-Needs Stocks Are Vital to Your Portfolio

From stable cash flow that supports healthy dividends to steadily increasing demand, this basket of basic-needs stocks is handily outperforming the benchmark S&P 500.

Jul 28, 2014 at 2:05PM

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.

Let's look at how our portfolio of basic-needs stocks has fared since we began this experiment.


Cost Basis


Total Value


Waste Management 










NextEra Energy















Select Medical










American Water Works 





Procter & Gamble 





AvalonBay Communities









Dividends receivable




Total commission




Original Investment




Total portfolio value




S&P 500 performance



Performance relative to S&P 500



Source: Yahoo! Finance, author's calculations.

I haven't had the opportunity to say this often lately, but the Basic Needs portfolio lagged the S&P 500 this past week, albeit by a minuscule 0.1%. Keep in mind that week-to-week fluctuations don't matter too much so long as this portfolio of basic-needs companies continues to drive strong cash flow. Even with this past week's underperformance, the Basic Needs portfolio is still outshining the benchmark S&P 500 by more than 4%!

As you can probably imagine, it was a busy week with regard to earnings reports and dividend declarations. Let's first dive right into last week's dividend news.

Show me the money!
In the dividend declaration column was electric utility NextEra Energy (NYSE:NEE), which on Friday declared a dividend payout of $0.725 that'll be payable on Sept. 15 to shareholders on record as of Aug. 29. Similar to Intel, NextEra has also seen its yield dip below the 3% mark to 2.9%, but this has more to do with its 15% rise since the beginning of the year than inadequate dividend growth. NextEra continues to look poised to capitalize on its large investments in alternative-energy projects like wind and solar, which should lower its long-term costs well below its peers and actually result in more stable energy bills for its customers. Between tax credits from the U.S. government for zero-emission energy generation and the fact that a growing population is likely to demand more energy consumption, I'd suggest NextEra is sitting in the sweet spot for many years to come.

Home is where the profits are
Residential real-estate investment trust AvalonBay Communities (NYSE:AVB) on Wednesday reported market-topping second-quarter results as the higher-end apartment rental community continued to see favorable occupancy and rising rental rates.


Source: AvalonBay Communities.

For the quarter, AvalonBay's revenue increased 6% to $413.8 million as rental rates rose by 3.2% and economic occupancy remained high but dipped ever so slightly by 0.1%. Earnings per share soared 332% to $1.21 from $0.28 in the year-ago period, but the more important figure, funds from operations, rose by 10.3% to $1.71. If you remove nonroutine items from the FFO calculations and make it as direct as possible from the previous year, you'd see a 5% year-over-year increase to $1.70, which modestly topped estimates. Looking ahead, AvalonBay projected full-year FFO in a range of $7.18-$7.34, handily trouncing the $6.77 the Street had been expecting.

With an interest rate increase looking likely within the next year, the expectation would be that AvalonBay's pricing power is only on pace to improve even more. Higher mortgage rates would discourage new home purchases and could push on the fence buyers back into renting.

Europe revs Ford's engine
Keeping with the theme of topping estimates, automaker Ford (NYSE:F) sped past expectations, even though its revenue declined 1% year over year in the second quarter to $37.4 billion. The primary culprit was a 1% decline in global auto sales, with every region seeing a sales decline except for Asia-Pacific. There, Ford can thank China for pushing total unit sales up 21%.


2015 Ford Transit, Source: Ford

What investors really honed in on was the company's 6% increase in net profit to $1.3 billion, or an adjusted $0.40 per share. By comparison, Wall Street was only expecting Ford to deliver $0.36 in EPS. If you're wondering what drove Ford's results, it was the company's first quarterly profit in Europe since 2011. Ford has seen significant market share gains in the commercial side of its European business and anticipates that it will be profitable on an annual basis in Europe by 2015.

The true key to Ford's success has been its innovation. So long as Ford continues to deliver affordable luxuries, sleek styling, and desired price points, there's no reason why it can't improve on its 2014 results next year.

Two heads are better than one
Finally, hospital and outpatient rehabilitation center operator Select Medical (NYSE:SEM) on Thursday announced a joint venture with Pennsylvania-based PinnacleHealth, which will have the two co-owning one hospital and 23 outpatient clinics throughout central Pennsylvania. The press release notes that 15 of the outpatient clinics will be coming from Select Medical, and Select Medical will serve as managing partner of the joint venture, although financial terms of the deal weren't disclosed.

This isn't Select Medical's first joint venture, and I don't expect it to be the last as the company looks to expand its geographic reach through partnerships if necessary. Like most hospital and outpatient operators, Select Medical is poised to benefit from the implementation of the Affordable Care Act, which is reducing the number of people who are uninsured and seeking medical care. The end result is fewer medical services going unpaid and potentially extra cash flow for Select Medical to deploy to expand its business. The more doors Select Medical can work its way into, the better its chance to expand.

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If you'd like a closer look at my reasoning behind each portfolio selection, just click on any, or all, of the following portfolio components:

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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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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