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.
|
Company |
Cost Basis |
Shares |
Total Value |
Return |
|---|---|---|---|---|
|
Waste Management |
$42.60 |
23.24 |
$1,024.88 |
3.5% |
|
Intel |
$23.22 |
42.64 |
$1,460.42 |
47.5% |
|
NextEra Energy |
$87.94 |
11.26 |
$1,108.55 |
12% |
|
MasterCard |
$64.557 |
15.30 |
$1,158.98 |
17.3% |
|
Chevron |
$124.95 |
7.93 |
$1,059.21 |
6.9% |
|
Select Medical |
$8.96 |
110.49 |
$1,722.54 |
74% |
|
Ford |
$17.50 |
56.57 |
$996.76 |
0.7% |
|
American Water Works |
$43.13 |
22.96 |
$1,115.86 |
12.7% |
|
Procter & Gamble |
$81.29 |
12.18 |
$969.04 |
(2.1%) |
|
AvalonBay Communities |
$133.95 |
7.39 |
$1,093.57 |
10.5% |
|
Cash |
$0.88 | |||
|
Dividends receivable |
$285.60 | |||
|
Total commission |
($100.00) | |||
|
Original Investment |
$10,000.00 | |||
|
Total portfolio value |
$11,996.29 |
20% | ||
|
S&P 500 performance |
15.7% | |||
|
Performance relative to S&P 500 |
4.3% |
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 (NEE +2.23%), 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 (AVB +0.46%) 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 (F +0.09%) 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 (SEM +0.00%) 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.
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:
