Phone company stocks have long had the reputation of being “widow and orphan” equities. We’ve talked before about how the Street Hates Utility Stocks.
That means that these holdings were so solid that the returns, especially the dividend income, could be counted on to provide for the most vulnerable. For some odd reason, that has many times been considered a negative. That was particularly so when high tech stocks were booming about a decade ago. It was as if these publicly traded firms were somehow dull due to the reliable total returns. But as the long term performance of AT&T (NYSE: T), Verizon Communications (NYSE: VZ), and BCE (NYSE: BCE) has proven, the total return is anything but mundane.
The Telephone Industry
AT&T, Verizon Communications, and BCE dominate the phone industry and related areas.
The sheer size of the numbers associated with each are indeed formidable. AT&T has a market capitalization of nearly $190 billion with sales of more than $128 billion. For Verizon Communications, the market capitalization is over $140 billion with sales of nearly $120 billion. BCE, primarily operating Canada, has a market capitalization of just under $35 billion with sales of over $19 billion.
As with the rest of the stock market, it has been a good year for AT&T, Verizon, and BCE.
Phone Company Stocks are Up
Verizon Communications has risen more than 20% for 2013. Over the same period, AT&T is up more than 10%. BCE is trading more than 6% higher than the first of the year.
What adds to the total return are the high dividend yields of each of these communications giants.
The present dividend yield for a member of the Dow Jones Industrial Average is about 2%. Each of these companies has a dividend more than twice that figure. BCE pays a dividend of over 5% to its shareholders. The dividend yield for Verizon Communications is 4.74%. For AT&T, there is a dividend of over 5%.
When investing for the long term, the role of the dividend should not be overlooked.
In his book, “Enough,” legendary investor Jack Bogle, the founder of the Vanguard family of mutual funds, noted that dividend income had provided for about 40% of the historic total return for equity. That means that in years when the stock market is flat or down, the only positive return from a stock is the dividend.
A Look at Beta
A previous article on this detailed how publicly traded companies with the lowest betas had proven to have the highest returns over the long term.
The beta for AT&T is 0.51. That is about half the average of 1, which represents the entire stock market. For Verizon Communications, the beta is 0.45. BCE has a beta of 0.52. The main reason why the betas are so low for those stock is that shareholders are pleased with the total return and thus have no reason to sell.
That should be the foundation for long term investing.
Saving for financial goals or paying college loans will be achieved through long term investing. As low beta stocks have proven to be the best investments, these should be the foundation for a stock portfolio. The high dividend yield of BCE, AT&T, and Verizon Communications makes each ideal for long term investing.
What are your thoughts on the phone company as a long term investment?