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The Basic Needs Portfolio

http://www.fool.com/investing/general/2013/09/03/the-basic-needs-portfolio.aspx

Sean Williams
September 3, 2013

In May, I announced my intention to create a portfolio that embodied life's basic needs. Understandably, many of the truly basic needs in our everyday lives have transcended far beyond just the need for water and shelter. 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 and bear markets, and command incredible pricing power in nearly any economic environment.

If you'd like a closer look at what my reasoning was behind each selection, you can do so by clicking on any, or all, of the following portfolio components:

Let's look at how our portfolio of basic needs stocks fared this week.

Company

Cost Basis

Shares

Total Value

Return

Waste Management 

$42.60

23.24

$939.83

(5.1%)

Intel

$23.22

42.64

$937.23

(5.3%)

NextEra Energy

$87.94

11.26

$904.85

(8.6%)

MasterCard 

$645.57

1.53

$927.30

(6.1%)

Chevron 

$124.95

7.93

$955.01

(3.6%)

Select Medical

$8.96

110.49

$935.85

(5.5%)

Ford

$17.50

56.57

$915.87

(7.5%)

American Water Works

$43.13

22.96

$935.39

(5.5%)

Procter & Gamble

$81.29

12.18

$948.70

(4.2%)

AvalonBay Communities 

$133.95

7.39

$915.62

(7.5%)

Cash

   

$0.88

 

Dividends receivable

   

$32.73

 

Total commission

   

($100.00)

 

Original investment

   

$10,000.00

 

Total portfolio value

   

$9,349.26

(6.5%)

S&P 500 performance

     

(4.5%)

Performance relative to S&P 500

     

(2%)

Sources: Yahoo! Finance, author's calculations.

It was a generally light week when it comes to news for much of the Basic Needs Portfolio, save for one aspect -- dividends!

Dividends, dividends, and more dividends!
There's little I enjoy more than reporting that a bunch of companies in this portfolio distributed their quarterly dividends over the past Labor Day-lengthened week. As you'll notice, that previous goose egg in the dividends receivable column is now sporting nearly $33 in fresh payouts.

Intel (NASDAQ: INTC) was one such company, distributing $0.225 per share to shareholders on Sept. 1. The knock against Intel has been its need to spend heavily by pushing its focus away from PCs and moving its product line into mobile applications and cloud-based hardware. While looking like an early success, skeptics fear that increased spending will curb Intel's cash flow and hurt its profitability. Based on its history of dividend increases, as well as a timely upgrade to buy from research firm Argus which placed a $28 price target on Intel, I don't see any cause for concern.

Hospital operator Select Medical (NYSE: SEM), the highest-yielding stock of this portfolio, also divvied out its quarterly payout to shareholders this past week of $0.10 a share. A big test is coming up for Select Medical in 2014 when the individual mandate portion of the Patient Protection and Affordable Care Act kicks in. If a good chunk of currently uninsured individuals sign up for health insurance, Select Medical could see its doubtful revenue fall, and it may be able to pass along these extra earnings as a meatier dividend or utilize its extra cash flow to purchase new equipment and differentiate itself from its peers.

Continuing with our theme of dividends, Ford (NYSE: F) put the pedal to the metal and delivered $0.10 a share to shareholders as of today! Ford CEO Alan Mulally doubled Ford's payout earlier this year to its pre-recession levels and the company -- minus Europe, which has been a struggle for practically all automakers -- has been firing on all cylinders globally. With growth outpacing its peers in China and its EcoBoost engine turning heads because of its fuel-efficiency without sacrificing performance, Ford's payout and profit growth seems like its back on track thanks to Mulally.

Water utility American Water Works also paid out its quarterly stipend of $0.28 a share as of today.

Going ex-div
Perhaps the next best feeling of getting your dividend placed into your stock account is the anticipation of knowing you have a payment coming. That's the feeling NextEra Energy (NYSE: NEE) shareholders experienced this week with the company going ex-div and $0.66 (the amount of the payout per share) was removed from the share price. Shares of NextEra have been the weakest performer thus far within the portfolio as skepticism over whether it'll get its requested price increases continues to cloud near-term growth. Based on my history of following utilities, I can say with a near certainty that NextEra will eventually get what it wants and the cash flow will continue to stream in! Shareholders can expect their $0.66-per-share payout on Sept. 16. 

Another flash crash?
Of the 10 companies comprising the Basic Needs Portfolio, I consider none safer and less volatile than consumer-goods provider Procter & Gamble (NYSE: PG). However, that notion was challenged last week, when a