Investors around the world should be happy that January is about to end. It has been a/an (insert negative adjective … it’s Market Mad Libs!) month for stocks.
But there have been some bright spots. Verizon is the best performer in the Dow so far this year. Shares are up 8%. Meanwhile, Verizon rival AT&T is off to a solid start of 2016 as well. Its shares have gained nearly 5%.
So that’s a good sign, right? If Verizon and AT&T are doing well, it must show that businesses and consumers are buying lots of smartphones and other mobile devices and consuming lots of data.
Well, not exactly. The main reason Big Red (not sure Verizon is worthy of Secretariat’s nickname if you ask me … or the famous gum that lets you kiss a little longer) and Ma Bell have thrived in this volatile market is because investors are so scared.
Let me explain.
Both Verizon and AT&T are often referred to as widow and orphan stocks — stable companies that pay reliable (and usually very big) dividends.
These are stocks that conservative investors can depend upon for a steady dose of income even if the sky may seem to be falling. (By the way, it’s not.)
You could say that AT&T and Verizon are like bonds for people who want something not as dowdy as a Treasury. They’re bond-ish.
Verizon’s dividend now yields about 4.6%. AT&T has a dividend that yields a whopping 5.3%.
Compare that to a 10-Year U.S. Treasury. It now yields less than 2%.
Safety. That’s the appeal of AT&T and Verizon. It’s certainly not their exciting growth potential.
Yes, their most recent earnings were decent. But not spectacular.
Verizon and A&T are each faced with a decline in their legacy landline business. Wireless is helping offset some of that pain. But not all of it. In fact, the wireless price wars with Sprint and T-Mobile — while great for consumers — aren’t good for margins.
Verizon’s revenues and earnings are barely expected to budge this year.
AT&T will do better — mainly because it will have a full year of DirecTV under its belt. Analysts are predicting that sales will rise 15% from 2015. But next year? It’s back to Snooze City … Wall Street is forecasting less than 2% growth in 2017.
There’s nothing sexy about single-digit growth in sales and profits. We’re not exactly talking Facebook or Google here.
Still, investors don’t seem to mind all that much. Right now, this is a market dominated by fear. People are more worried about losing money than losing out on the chance to make money.
That’s why another unglamorous (but safe!) sector — utilities — is doing well too. The Dow Jones Utility Average is up more than 5.5% this year. And like Verizon and AT&T, electric companies pay big dividends.
So as long as the market remains fixated on lower oil prices and China’s slowdown, then expect utilities, AT&T and Verizon to remain some of the few winners on Wall Street.