The flight-to-safety was in full force this week. Treasury bonds and gold saw large demand as investors sought ways to reduce portfolio risk and lower volatility. The movement also saw investors rotate into more defensive sectors like consumer staples and telecoms. Verizon (NYSE:VZ) was one of the big winners, staging a significant breakout ahead of the weekend. If you’re seeking a lower beta way to play equities, then VZ stock is worth a look.
And it is not just the price chart that deserves your attention. The juicy dividend is half the argument. Every quarter, Verizon sends 64 cents to shareholders. That translates into $2.56 per year for a yield of 4.64%. By comparison, the S&P 500’s dividend yield is only 1.5%. The two sectors with the highest cash flow are real estate and utilities at 3.66% and 3.09%, respectively. I could go on, but the point is Verizon is offering excellent yield on an absolute and relative basis.
So, even if the bullish trend reversal that we’ll spotlight below doesn’t deliver significant price gains, Verizon is a solid bet even if prices stagnate.
VZ Stock Charts
While the broader equities market has been flying to the moon over the past three years, VZ stock has been treading water. That has kept its valuation in check and made it unnecessary for a massive unwind during this year’s market turmoil.
In fact, Verizon technically already suffered a bear market in 2021. Its share price topped out near $62 and fell as low as $50 in late-2021. The reset pushed prices down to a major long-term support zone while juicing the yield from 4% to as high as 5%.
Click to Enlarge
Fortunately, buyers emerged to defend the psychologically significant $50, and we’ve since carved out a reversal pattern. This week’s launch is taking us above the $54.50 resistance level and the falling 50-week moving average. This is the first time prices have been north of the 50-week since last May. And it clears the deck for a move to the 200-week moving average near $56.50. Beyond that, an eventual return to the high end of its multi-year range makes $62 a possibility.
Price hasn’t provided the only bullish signal. Volume is also playing a role. We’ve seen five separate weeks of accumulation since December, revealing a consistent trend of institutional buying. Their support should bode well for VZ stock moving forward and keep the downside risk contained.
Daily Breakout
Click to Enlarge
Zooming in to the daily chart lends even more credibility to the breakout. The two months of chop that greeted investors in 2022 had a bullish bent and pulled the 50-day moving average higher. At the same time, the 200-day moving average was still sinking to catch up with last year’s fall in prices. Together, these two smoothing mechanisms formed a pinching pattern that is resolving itself to the upside. Prices blasted above the 200-day on Thursday and they’re following through Friday. We’re now back to trending above all major moving averages.
Spectators who missed the initial stages of the trend reversal now have a green light to climb aboard. Verizon has provided a great degree of diversification in recent weeks. The 10-day correlation between VZ and the S&P 500 has fallen to 0.42 when most stocks are moving in lockstep with the Index. Here is another way to express it. The S&P 500 is down 9% on the year. Verizon is up 6.4%.
You can buy shares outright, and indeed you’ll need to if you want to capture the dividends. Otherwise, consider the following options spread:
Buy the Jun. $52.50 call while selling the Apr. $57.50 call for a net debit of $3.30.
It is is a bull call diagonal spread that will deliver over $1.50 in profits if Verizon climbs past $57.50 by expiration.
On the date of publication, Tyler Craig was LONG VZ.
