If you watch the financial news on any given day, you’re far more likely to hear the names Apple (AAPL), Nvidia (NVDA) or Microsoft (MSFT) than Verizon (VZ) or AT&T (T). That’s because the double and even triple digits those tech giant stocks are capable of providing in any given year are inherently exciting. Verizon and AT&T, on the other hand, are more associated with adjectives like “conservative,” “defensive” or even “boring.”
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But investors who quickly dismiss mobile providers like Verizon and AT&T might be missing out on a solid opportunity. Here’s why.
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Many investors shy away from “defensive” stocks like mobile providers because they don’t offer the potential for huge gains. But these are the very stocks that investors turn to during recessions or market sell-offs precisely because of their defensive nature.
When big tech stocks are dropping 40%, 50% or even more, it can panic even the most steadfast of investors. To remain in the market, money often flows to stocks like Verizon and AT&T, which may drop only a little bit or perhaps even rise when momentum stocks are crashing.
The reason these types of stocks tend to hold up during recessions or other market corrections is their services are always needed, regardless of the current economic situation. Even if you lose your job, for example, you’re likely to keep paying your mobile phone bill as long as possible because it can be hard to look for a job — or get an offer — if you can’t use your phone.
Whereas demand for technology and other industries and services can be cyclical, mobile phone service has become one of life’s essentials.
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Stocks like Verizon and AT&T will never have the premium valuations of stocks like Nvidia and Microsoft. But these low valuations can also offer an investment opportunity. Even within the low-multiple universe of mobile providers, Verizon and AT&T are exceptionally cheap, with price-to-earnings (P/E) ratios of 10.41 and 17.63, respectively. Competitor T-Mobile (TMUS), on the other hand, sports a lofty 23.53 P/E.
Meanwhile, both stocks also offer well-above-average dividend yields, making them very attractive to income investors. The S&P 500, for example, currently yields a relatively meager 1.27%. AT&T, on the other hand, pays a hefty 3.84% dividend yield, while Verizon pays a whopping 6.26%. That means even if Verizon stock doesn’t go anywhere, you’ll earn a return of 6.26% — not to mention that the company has an 18-year track record of raising dividends.
