A “widow-and-orphan stock” (or “widows’-and-orphans’ stock") is a well-known, low-risk stock that pays high dividends. Widows and orphans have long been thought to be vulnerable and needing safety, especially in investing their life savings.
The American Telephone & Telegraph Company (AT&T) had been known as the classic “widow-and-orphan stock” from the 1930s until the 1980s (when AT&T was ruled to be a monopoly and was divided into several companies). The term “widows and orphans stock” appeared in the July 8, 1936 issue of The Financial World.
The Motley Fool (see the 2007 citation below) has argued that an 80-year-old widow should have a different investment strategy than a 15-year-old orphan, so “widow-and-orphan stock” should be a misnomer.
Relatively low-risk stocks from well-known firms that pay high dividends.
Widow-and-Orphan stocks are generally chosen during bear markets and ignored during bull markets. This is because these companies are perceived to be able to maintain their dividend payment schedule through difficult financial times.
Wikipedia: American Telephone & Telegraph
AT&T Corporation, originally the American Telephone & Telegraph Company, is an American telecommunications company that provided voice, video, data, and Internet telecommunications and professional services to businesses, consumers, and government agencies. During its long history, AT&T was at times the world’s largest telephone company, the world’s largest cable television operator, and a regulated monopoly. Today, the company is a subsidiary of AT&T Inc. and its subsidiary AT&T Communications still provides long distance service across the country.
In 2005, AT&T was purchased by Baby Bell SBC Communications for more than $16 billion, who then changed its name from SBC to AT&T, Inc. At its peak, it employed one million people and its revenue was roughly $300 billion annually in today’s dollars (for comparison, ExxonMobil’s 2006 annual revenue was $377.6 billion).
AT&T Corporation continues to exist as a subsidiary of AT&T Inc. and its name occasionally shows up in AT&T press releases.
5 July 1936, New York (NY) Times, pg. N9 ad:
10 STOCKS BEHIND THE MARKET
THE FINANCIAL WORLD points out in July 8th issue “A Group of Attractive Laggard Stocks”. Each is selling at or below its price of a year ago and posseses encouraging prospects. Read also “Fifty Companies Which May Be Forced to Raise Dividends”, “The ‘Widows’ and ‘Orphans’ Stock”, “New Outlook for Chain Store Shares”, and “A Fast Growing Accessory”.
Monday, Oct. 02, 1950
One of the few certainties in Wall Street’s uncertain world is that American Telephone & Telegraph Co., the “widows’ & orphans’ stock,” will always pay its $9 yearly dividend. A.T.&T., which has not missed a dividend in 50 years, has been paying $9 since 1922 when the rate was upped from $8.50.
How to live with your investments
By Linhart Stearns
New York, NY: Simon and Schuster
Some investors even look upon a stock such as American Telephone and Telegraph as if it were a bond. Yet even this outstanding widows’ and orphans’ stock declined 75 per cent from its high to its low.
The American Stockholder
By Joseph A. Livingston
Published by Lippincott
American Telephone & Telegraph Company, which has come to be known as the “widows’ and orphans’ stock,” has built up a huge following of loyal investors.
High Noon on Wall Street
Monday, Mar. 17, 1958
THE MAN WHO BROKE THINGS (312 pp.)—John Brooks—Harper ($3.95).
In the world of corporate business, the closest thing to a western movie is a proxy fight. The good guys and bad guys unlimber their six-shooters in ads in the newspapers’ financial sections. The sheriff (Securities and Exchange Commission) tries to preserve law and order and to protect the widows’ and orphans’ stock.
The Motley Fool
The Stocks Every Orphan Should Own
By Tim Hanson
August 7, 2007
There’s been a lot of bad advice dished out by the financial industry over the past 100 years or so. Most recently, we have Cliff Mason, the 22-year-old Harvard grad-cum-"liberal arts guy” who chooses to ignore the power of compounding returns.
But bad financial advice didn’t start with Cliff.
Back in my day ...
The term “widow-and-orphan stock” was coined in the 1930s to describe mature companies with fat dividends and entrenched market positions. Given the market volatility at the time, it was only natural that proven performers such as AT&T (NYSE: T), Dominion Resources (NYSE: D), and Consolidated Edison (NYSE: ED) should be recommended to the most helpless, hapless, and risk-adverse investors in the market.
Unfortunately, the term and the advice don’t recognize one crucial fact: widows and orphans should be very different types of investors.
New York City • Banking/Finance/Insurance • (0) Comments • Wednesday, December 17, 2008 • Permalink