This market certainly has turned volatile. That’s no surprise, given the change in compliance regulations on financial institutions, deregulation efforts and the unwinding central bank oversight of the economy. But the challenge is to find the stocks that can get through it without a great deal of drama.
Find the stocks that are filling their sails with the winds of change.
That’s precisely what Verizon Communications Inc. (NYSE:VZ) and Regions Financial Corp (NYSE:RF) can deliver. Both have rock-solid dividends. Both are benefiting from a less restrictive regulatory marketplace. And both are well placed to grow without too much downside risk, especially relative to their upside opportunities.
VZ stock hasn’t been setting the world on fire in the past year, up about 5% — about half of the performance from the S&P 500. But VZ has made some big purchases over the past couple years and it’s continuing to fight for market share in the wireless space.
And Verizon stock was a strong relative outperformer yesterday — when the market sank, VZ stock was actually up almost 2%. Earnings were strong, and not just on ephemeral stock buybacks.
It lost fewer subscribers than it had predicted, which is a very good sign. It also said it was out of the market for an entertainment division and was going to stick to focusing on deploying 5G and packaging streaming services for mobile and its fiber optic FiOS service.
It’s a smart move to stay out of the merger hunt for content companies, at least until there’s more visibility on what’s going to happen with the Department of Justice case against AT&T Inc. (NYSE:T) and Time Warner Inc (NYSE:TWX).
VZ is looking for base hits right now to drive in runs, rather than swinging for the fences. As its Q1 numbers demonstrate, that’s serving the company well.
And its 4.8% dividend yield is a very nice kicker.
Regions Financial is a regional bank with $123 billion in assets that has 1,500 branches that serve customers across the South, Midwest and Texas.
Its dividend currently sits around 1.9% but part of the reason is the fact that RF stock has risen 35% in the past year, more than tripling the S&P 500’s performance over the same time frame.
While the national financial institutions have reported massive improvements to their top and bottom lines, RF and other regionals also have been enjoying the fruits of the current economic and regulatory conditions.
You see, lower regulation means lower costs of doing business. And that means bigger margins for banks when it comes to lending. Also, banks raise rates on loans faster than they do on deposit accounts, so those margins also expand as the economy grows.
All this is hitting at the same time, so it’s no surprise Q1 numbers are so impressive. RF is a favorite because it’s a big regional bank, so it will benefit from its size as well as its ability to grow in this economic and regulatory atmosphere. It’s also conservatively run, so there’s less risk that it’s going to try overly aggressive ways to add to its bottom line.
Neil George is the editor of Profitable Investing and does not have any holdings in the securities mentioned above.