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:
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 | $950.28 | (4%) |
| Intel | $23.22 | 42.64 | $999.48 | 0.9% |
| NextEra Energy | $87.94 | 11.26 | $892.02 | (9.9%) |
| MasterCard | $645.57 | 1.53 | $1,019.61 | 3.2% |
| Chevron | $124.95 | 7.93 | $984.43 | (0.6%) |
| Select Medical | $8.96 | 110.49 | $910.44 | (8%) |
| Ford | $17.50 | 56.57 | $981.49 | (0.9%) |
| American Water Works | $43.13 | 22.96 | $902.10 | (8.9%) |
| Procter & Gamble | $81.29 | 12.18 | $962.83 | (2.8%) |
| AvalonBay Communities | $133.95 | 7.39 | $954.71 | (3.6%) |
| Cash | $0.88 | |||
| Dividends receivable | $48.09 | |||
| Total commission | ($100.00) | |||
| Original investment | $10,000.00 | |||
| S&P 500 performance | (1.3%) | |||
| Performance relative to S&P 500 | (2.6%) |
Sources: Yahoo! Finance, author’s calculations.
As you might have anticipated with a portfolio of basic needs stocks, dividends were once again the talk of the week, with two companies paying out their quarterly distribution and another announcing their third-quarter dividend.
Show me the money!
Although it’s been far and away the worst performer thus far, electric utility NextEra Energy, Inc. (NYSE:NEE) delivered a $0.66 per-share dividend to shareholders as of today. Electric utilities provide some of life’s most basic necessities (electricity), but they also have a tendency to underperform when the market is roaring higher since they’re most often viewed as defensive plays. I wouldn’t read too much into NextEra Energy, Inc. (NYSE:NEE)’s recent weakness, especially considering that its energy portfolio is focused on promoting rapidly growing and clean alternative energies.
In addition to NextEra Energy, Inc. (NYSE:NEE), shareholders in Chevron Corporation (NYSE:CVX) on Tuesday received their quarterly $1 per-share stipend. On top of receiving this hefty dividend, shareholders were also treated to good news when Chevron Corporation (NYSE:CVX) announced a settlement with Brazilian lawmakers who levied $17.5 billion in lawsuits against it and Transocean for an oil spill in Nov. 2011 for a mere $42 million. Owning a global oil giant like Chevron Corporation (NYSE:CVX) does expose investors to the possibility of adverse events like a spill; however, rarely — with the exception of the BP spill — do these adverse events translate into monstrous fines and penalties.
We also heard from rental REIT AvalonBay Communities Inc (NYSE:AVB) this week, which announced a third-quarter dividend of $1.07 that’ll be payable to shareholders on Oct. 15 that are on record as of Sept. 30. If I were an AvalonBay shareholder I would be pretty excited about the prospect of 30-year mortgage rates rising. Higher lending rates tend to discourage prospective homebuyers from pulling the trigger and have the effect of pushing those people back into renting. I find it very likely that AvalonBay Communities Inc (NYSE:AVB)’s pricing power and occupancy rate is only going to improve moving forward.
But don’t forget these moves …
Payment processing facilitator Mastercard Inc (NYSE:MA) had a particularly strong week after receiving a price target boost on Thursday from Jefferies to $758, with the research firm holding to its “buy” rating on the company. The reason for the target price hike relates to the 85% of worldwide transactions still being conducted in cash, giving Mastercard Inc (NYSE:MA) ample opportunities for growth over the coming decades. This is a point I’ve touched on numerous times and is a primary reason I selected Mastercard Inc (NYSE:MA) to this basic needs portfolio. Also, as a bonus, keep in mind that since MasterCard is a payment processor and not a direct lender, it has zero worries about consumer credit quality.
