In 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 and bear markets, as well as command 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:
- Waste Management
- Intel
- NextEra Energy
- MasterCard
- Chevron
- Select Medical
- Ford
- American Water Works
- Procter & Gamble
- AvalonBay Communities
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 |
$961.90 |
(2.8%) |
|
Intel |
$23.22 |
42.64 |
$979.87 |
(1%) |
|
NextEra Energy |
$87.94 |
11.26 |
$901.59 |
(8.9%) |
|
MasterCard |
$645.57 |
1.53 |
$1,043.23 |
5.6% |
|
Chevron |
$124.95 |
7.93 |
$972.54 |
(1.8%) |
|
Select Medical |
$8.96 |
110.49 |
$887.23 |
(10.4%) |
|
Ford |
$17.50 |
56.57 |
$964.52 |
(2.6%) |
|
American Water Works |
$43.13 |
22.96 |
$938.60 |
(5.2%) |
|
Procter & Gamble |
$81.29 |
12.18 |
$940.42 |
(5%) |
|
AvalonBay Communities |
$133.95 |
7.39 |
$955.53 |
(3.5%) |
|
Cash |
$0.88 | |||
|
Dividends receivable |
$56.57 | |||
|
Total commission |
($100.00) | |||
|
Original investment |
$10,000.00 | |||
|
Total portfolio value |
$9,602.88 |
(4%) | ||
|
S&P 500 performance |
(1%) | |||
|
Performance relative to S&P 500 |
(3%) |
Source: Yahoo! Finance; author's calculations.
Show me the money!
As I've often said, one of the great aspects of basic-needs stocks is that they generate near-guaranteed cash flow in almost any economic environment. That cash flow leads to steady, and predominantly growing, dividends among the aforementioned 10 stocks. This week, water utility American Water Works (AWK +2.12%) declared that it would pay a $0.28 quarterly stipend on Dec. 2 to shareholders who are on record as of Nov. 15. Barring a cataclysmic drought, water usage and billing tends to deliver slow but consistent growth, presenting the perfect income-building scenario for the long-term investor.
Other news
Individual stories were also headlining this week, perhaps none more than speculation from AllThingsD and Reuters that Ford's (F 1.66%) current CEO, Alan Mulally, is considered the top choice to take the soon-to-be vacant CEO position at software giant Microsoft. It's no secret that Microsoft needs a game-changer, and Mulally has been just that while righting Ford's ship. Ford shareholders can breathe a sigh of relief, as the company's COO, Mark Fields, says Mulally has no intentions of abandoning the carmaker. Mulally even mentioned this month that he intends to remain Ford's CEO through 2014. It was certainly a choppy week for Ford shareholders given this news, but I feel they can sit back and relax now.
Credit card payment facilitators MasterCard (MA 0.44%) and Visa dodged yet another bullet when a U.S. District Judge in Los Angeles tentatively ruled that neither company had infringed on a patent of payment router SmartMetric. According to SmartMetric's $13.4 billion lawsuit claim, MasterCard and Visa infringed on its patents, which specifically relate to the use of the new magnetic chip EMV cards and the process by which a network is chosen. MasterCard is certainly no stranger to lawsuits, but shareholders can be thrilled to put yet another one in the rearview mirror.
NextEra Energy (NEE 0.06%) added to its nation-leading alternative-energy portfolio this week by announcing the completion of its 124.4-megawatt Summerhaven wind farm in Canada. The allure of NextEra is that more than 10,000 MW of its generation comes from wind energy -- just shy of three-fifths of its total generating capacity. The initial costs of alternative-energy projects are burdensome, but as NextEra is showing, the significantly lower long-term costs will put it in position to vastly outperform its peers.
Finally, keep your eye on hospital and outpatient clinic company Select Medical (SEM +0.00%) this upcoming week. State-run and federally run health exchanges are expected to open for business on Tuesday, and a smooth or rough start could signal which way hospital companies will head next. Select Medical is counting on millions of Americans to sign up for health insurance, which should help lower the amount of revenue it writes-off every year from uninsured people who need its services but can't pay.
Back to basics
Although this portfolio slightly underperformed the S&P 500 for the week, it's performing exactly as I would expect a blended portfolio of necessity stocks to perform. We've already collected nearly $57 in dividends in just two months and should easily cover our commission costs by the end of November. I firmly believe that sticking with these well-established businesses should allow this portfolio to handily outperform the broad-based S&P 500 over the long run.
Check back next week for the latest update on this portfolio and its 10 components.
