With the new year just upon us, I think most investors would do well to focus on the basics. I am talking about making sure one's investment portfolio has plenty of proven winners with solid dividends. It is OK to take risks, but the basics should be covered.
Let me recommend two classic bedrock companies -- namely, the two largest telephone service providers in the country, Verizon Communications (VZ) and AT&T (T). These companies dominate the wireless market. Statista says Verizon has 33% of the domestic market and AT&T 34%, while the runner-ups, Sprint (S) and T-Mobile (TMUS), each hold 16% shares. The two big companies also are engaged in related communications businesses, as seen with AT&T's recent purchase of DirecTV.
Choosing stocks for me is easy. I rely on a bundle of automated strategies I created that are based on the thinking of some of Wall Street's smartest players. I can plug in a stock symbol and see how these gurus would rate the stock. And right now, the strategy that mirrors how James P. O'Shaughnessy studies stocks is very positive on both Verizon and AT&T.
Here is how this strategy works: It first looks at four variables -- market cap (which must be north of $1 billion), cash flow per share greater than the mean of the market's cash flow per share (which is currently $1.76), outstanding shares that number more than the market average (which is 640 million) and trailing 12-month sales that must be more than 1.5x greater than the market's mean (which is $21.1 billion).
Stocks that pass these tests then are measured by their dividend yield, and the 50 stocks with highest yield win the brass ring.
So how do Verizon and AT&T fare by these criteria? Let us look first at Verizon: market cap of $190 billion, cash flow per share of $6.58, outstanding shares numbering more than 4 billion and sales of $131 billion. It easily passes over these hurdles. The thing that places it in the top 50 group is its dividend yield: 4.84%.
AT&T also easily makes the grade: market cap of $213 billion, cash flow per share of $4.20, shares outstanding of 5.9 billion and sales of $139 billion. It earns a top rating with a 5.54% dividend yield.
If you want to start off the new year by building a solid financial foundation, feel confident relying on either or both of these economic powerhouses.
