Are AT&T and Verizon Good Stocks for a Recession? Insights from Analysts

As the possibility of an economic downturn looms, investors are increasingly looking for stable options in the stock market. Telecommunications giants AT&T Inc. (T) and Verizon Communications Inc. (VZ) have emerged as potential safe havens, offering attractive dividends and straightforward business models. In a recent analysis by Raymond James, the investment landscape for these telecom stocks suggests a favorable outlook amidst recessionary fears.

The Appeal of Telco Stocks in Challenging Times

Telecommunications stocks have historically been viewed as relatively secure investments during economic downturns. Analysts suggest that Verizon and AT&T, in particular, may be even more appealing in the current economic climate. Both companies provide substantial dividends that can attract investors seeking income in defensive markets. For instance, Verizon’s dividend yield is over four times that of the S&P 500, while AT&T’s yield is nearly three times greater.

In a piece authored by Emily Bary for Dow Jones, it was noted that mobile phones have become essential, almost “addictive,” products in consumers’ lives. As a result, demand for wireless services is expected to remain robust, regardless of economic conditions. Investors may find reassurance in the stable revenue streams generated by these telecom companies.

Refocusing Business Models for Stability

One of the critical shifts in AT&T and Verizon’s business strategies has been the simplification of their operations. Over the past few years, both companies divested various media units, allowing them to concentrate on core telecom services. According to Raymond James analyst Frank Louthan IV, both companies are now better positioned to weather economic storms because they now operate as more streamlined fiber and wireless businesses.

Louthan emphasizes that this market dynamics benefitting AT&T and Verizon are significantly different from previous economic downturns. He notes that telecom companies have minimal direct exposure to tariffs and are selling services that consumers view as essential. “Mobile phones are undoubtedly one of the most addictive consumer products,” he expressed. “Even if hit with higher prices from tariffs in the near term, we highly doubt this will negatively impact the demand for wireless services.”

Potential Consumer Behavior Changes

While it’s conceivable that consumers may become more budget-conscious during a recession, this could actually favor telecom companies like AT&T and Verizon. Here’s why: When customers decide to extend the life of their current devices and forgo costly upgrades, carriers traditionally incur fewer losses related to equipment sales. Louthan points out that telecom carriers often don’t profit from selling mobile equipment, which implies that a reduction in new device purchases may yield a positive effect on overall financial health.

In the analyst’s calculations, he estimates that tariffs on new devices might add approximately $8 to $9 to the monthly cost of a new smartphone incorporated into a service plan. He believes many consumers would prioritize this expense over luxury items, indicating strong resilience in demand for wireless connectivity, regardless of a looming recession.

Value in Telecom Stocks Amid Uncertainty

Despite the risks associated with any recession, analysts believe that AT&T and Verizon may be attractive holdings for longer durations. The changing dynamics in U.S. foreign trade relations add an element of unpredictability, suggesting that wireless stocks may be especially valuable as Wall Street navigates an uncertain landscape. Louthan asserts that these telecom companies might be held for a more extended period than considered in previous downturns.

Analysts’ Recommendations

Further supporting the positive sentiment for telecom stocks, Citi Research analyst Michael Rollins has highlighted AT&T as his top stock pick, pointing out its multi-year strategic growth prospects. While Rollins acknowledges the risk that a recession could negatively impact the company’s performance—particularly in its legacy business segments—he ultimately maintains a positive outlook on AT&T’s financial trajectory.

As the potential for economic turbulence increases, the strategies and financial statuses of AT&T and Verizon warrant close attention. Given their commitment to streamlined operations and essential service offerings, both telecom stocks could serve as resilient investments for those wary of market volatility.

Conclusion

As more investors begin to seek safer stocks amidst fears of a recession, AT&T and Verizon present compelling cases for consideration. With strong dividends, simplified operations, and a business model that prioritizes essential consumer services, these companies may not just survive economic downturns—they could thrive while offering investors stability in an unpredictable environment.