The spectacular success of Apple’s iPhone is spilling over to the telecoms that provide wireless service – particularly the two giants in the business, AT&T and Verizon. This gives rise to an excellent opportunity for long-term investors, since both stocks provide generous yields of 5.2% or more.
Apple’s spectacular earnings report last week beat analysts’ estimates by a large margin, but one of the biggest surprises was the continued robust sale of iPhones, even though a new model, the iPhone 5, is expected this fall. These strong sales translate directly into better-than-expected results at phone service providers AT&T and Verizon.
Companies as large and complex as the telecoms have lots of other things going on, of course. Although Verizon beat estimates, the stock lost ground on Friday because phone sales were not quite as good, compared with those of AT&T, as investors would have liked. And AT&T has its own issues, not least the planned acquistion of T-Mobile, which is opposed by some consumer groups.
But the bottom line seems fairly clear to me: Both AT&T and Verizon pay yields above 5%, which is rare for common stocks that are not utilities. And whatever difficulties the two companies may face in other parts of their businesses, they stand to gain from rapid ongoing growth in wireless service for phones and tablet computers. That seems like the perfect recipe for a growth-and-income stock, and I own them both.