Institutional investors, the so-called smart money, have been doing more buying than selling in only one industry this year: telecommunications services.
That may well be because four of the eight companies that make up the sector in the S&P 500 index are the ultimate defensive plays if you want to stay in stocks. They pay huge dividends and have inimitable franchises that put a floor under their share prices if the broader equity market continues to fall.
What's more, as the U.S. economy accelerates next year and in 2013, as many economists forecast, those same companies will become even more dominant. Demand is already exploding for new and more capable communications needs, ranging from mobile-phone applications to more Wi-Fi accessible spots.
Given their current monopoly in some services, such as landline and cable TV, the companies aren't likely to lose customers. That means steadily growing cash flows, which will continue to support their dividends.
The S&P 500 index is down 7.1 per cent this year, but up 2.3 per cent over the past 12 months.
Here are snapshots of the four telecommunications services firms that have seen more institutional buyers than sellers this year, as tracked by Bloomberg:
AT&T is the dominant local phone company in 22 states, serving about 41 million local phone lines, 16 million Internet users, and 3 million television customers.
The company has a projected dividend yield of 6.02 per cent and a market value of $170-billion (U.S.). Its shares, now trading at $28.58, are up 1.6 per cent this year, and 4.6 per cent over the past 12 months. Over three years, its shares have an average annual return of 3.8 per cent.
AT&T is expected to earn $2.36 per share this year.
The company is only going to get bigger. On March 20, AT&T announced an agreement to acquire T-Mobile USA from Deutsche Telekom for about $39-billion, subject to regulatory approvals.
The deal is expected to add about 34 million wireless customers and the transaction is expected to be accretive to earnings in the third year, according to BMO Capital Markets analysts.
Those analysts said in a research report that AT&T's "stock is attractively valued relative to its peers and the market in general on most metrics" so it is maintaining its "outperform" rating on its shares, based on the AT&T's strong strategic position, and potential to improve operational and financial performance.
Analysts give its shares 14 "strong buy" ratings and 12 "holds," according to TheStreet Ratings.
Verizon serves about 25 per cent of the U.S. population via its long-haul network. Verizon Wireless, the firm's 55 per cent-owned partnership with Europe's Vodafone, serves about 94 million customers across the U.S.
Verizon is expected to earn $2.25 per share this year.
Its shares have a 5.43 per cent projected dividend yield and a market value of $104-billion. Currently trading at $36.88, its shares are up 7 per cent this year and 19 per cent over the past 12 months and boast a three-year annualized average return of 12 per cent.
BMO Capital Markets gives its shares an "outperform" rating based on "the company's leading wireless franchise, extensive broadband footprint and potential for improving financial performance in the coming quarters."
Analysts are all over the place on Verizon's shares, giving them 10 "strong buy" ratings, one "moderate buy," 15 "holds," one "moderate sell," and one "strong sell," according to TheStreet Ratings.
CenturyLink is soon to be the nation's third-largest phone company after its acquisition of Embarq in 2009, Qwest in 2010 and the recent takeover of information-technology services provider Savvis.
It has seen institutional buyers outnumber sellers of its stock this year by well more than double, according to Bloomberg.
But apparently retail investors aren't part of its investor base, as CenturyLink's shares are getting hammered, losing 22.5 per cent this year and 8.6 per cent over the past 12 months.
So why the big institutional investor interest? CenturyLink's gigantic cash flows, which allows it to offer an 8.63 per cent projected dividend yield while at the same time it's funding those three big acquisitions.
Currently trading at $33.71 per share, it has a market value of $20.8-billion. indepth
Analysts give its shares 12 "strong buy" ratings, one "moderate buy," and five "holds," according to theStreet Ratings.
Windstream was formed in July 2006 in the merger of Alltel's fixed-line business and Valor Communications. The firm serves about 2.9 million phone lines, 1.9 million long-distance phone customers, and 1 million high-speed Internet customers. It has operations in 16 states, primarily in the Southeast and southern Midwest.
It's also aggressive in making acquisitions, as it recently closed D&E Communications and has announced plans to acquire two relatively small telecommunications firms, NuVox, which serves the Southeast, and Lexcom, a regional services provider based in Aurora, Ill.
Windstream has a projected dividend yield of 8.43 per cent on its shares, which are currently trading at $11.82.
"The market is paying a premium for dividend yield over other forms of cash deployment, including buybacks and business reinvestment," said Bank of America Merrill Lynch analysts in a research note on Windstar after giving it a "buy" rating.
Nevertheless, the shares are down 9 per cent this year, bringing the market value to $6-billion. Its shares are up 2 per cent over the past 12 months.
Analysts give it five "strong buy" ratings, one "moderate buy," and nine "holds," according TheStreet Ratings.