Companies face uncertainties all the time. But when a big new fear comes out, prices drop first, and take time to recover. That can cause dividend companies to see their yields soar. Investors who take advantage of that opportunity can buy high yields.
With a high dividend yield, investors get paid to wait for shares to recover. And if the company is operationally sound, the dividend can even grow during a time when the market has some sort of fear.
Right now, telecom companies are taking ah it, following a report that they left lead-sheathed cables in the ground. That may be creating a buying opportunity, particularly for AT&T (T).
The telecom company wasn’t overpriced going into the news. The selloff has pushed the stock to a 7.2 percent dividend yield. And with shares trading at just 6 times forward earnings, there’s enough cash flow for the company to amicably resolve its lead cable issue.
Action to take: AT&T looks like a contrarian buy here. The high yield offers a substantial return while waiting for a recovery in shares, which, in all honesty, will probably take months if not years to play out.
For traders, shares have dropped on the news, and likely aren’t ready to move higher quite yet. Investors who buy shares here may want to consider selling covered call options, like the September $15 calls, to further increase their income off of the trade.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.