Communication services stocks usually pose high barriers to entry to potential competitors thanks to the hefty amounts they have invested in infrastructure. As a result, they are suitable candidates for the portfolios of investors who seek safety and protection from negative surprises related to business deterioration.

In addition, most stocks in this sector are resilient to recessions and some stocks offer markedly generous dividends. In this article, we will analyze the prospects of three communication services stocks that are attractive right now.

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Verizon Communications (VZ)

Verizon was created with the merger of Bell Atlantic with GTE in 2000. It is one of the largest wireless carriers in the country and generates three-quarters of its revenues from wireless, while broadband and cable services comprise approximately 25% of its revenues. The network of Verizon covers about 300 million people and 98% of the U.S. Verizon has also launched 5G Ultra-Wideband in several cities.

A key competitive advantage of Verizon is its reputation as the best wireless carrier in the U.S. This is clearly reflected in the wireless net additions of the company and its market-leading low churn rate. This reliable service allows Verizon to maintain its customer base and move some customers to higher-priced plans.

Thanks to the nature of its business, Verizon has proved resilient to recessions. It has also proved rock-solid throughout the coronavirus crisis. In 2020, when most companies saw their earnings collapse due to the pandemic, Verizon grew its earnings per share 2%, to a new all-time high. Even better, thanks to its strong business momentum, it is on track to grow its earnings per share by another 10% this year.

Moreover, Verizon has invested excessive amounts on infrastructure for years and thus it has formed high barriers to entry to potential competitors. Thanks to its business moat, the company has grown its earnings per share at an 8.6% average annual rate over the last decade. It has also raised its dividend for 17 consecutive years. This period includes the Great Recession and the pandemic and hence it confirms the defensive nature of Verizon during recessions.

Verizon is currently offering a 4.9% dividend yield, which is approximately four times the 1.2% yield of the S&P 500. Given the healthy payout ratio of 48% of the stock, its manageable debt load and its resilience to recessions, investors should rest assured that Verizon will continue raising its dividend for many more years. Overall, income-oriented investors can lock in the 4.9% yield of Verizon and enjoy dividend raises for the next several years.

Comcast Corporation (CMCSA)

Comcast is a media, entertainment, and communications company, founded in 1963. Its business includes Cable Communications (High-Speed Internet, Video, Business Services, Voice, Advertising, Wireless), NBCUniversal (Cable Networks, Theme Parks, Broadcast TV, Filmed Entertainment), and Sky, a leading entertainment company in Europe that provides Video, High-speed internet, Voice, and Wireless Phone Services directly to consumers.

Last year, Comcast was negatively affected by the pandemic, which hurt the businesses of NBCUniversal and Sky, particularly the filmed entertainment segment and the theme parks due to the social distancing measures imposed. Consequently, Comcast incurred a decrease in its earnings in 2020 for the first time in a decade.

However, thanks to the massive vaccine rollout and the unprecedented fiscal stimulus packages offered by the government in response to the pandemic, Comcast is recovering strongly this year. In the third quarter, the company grew its revenues and its earnings per share by 19% and 34%, respectively, over the prior year’s quarter. The Theme Parks segment posted its greatest profit since the onset of the pandemic. Thanks to its strong recovery, Comcast is on track to achieve record earnings per share this year, slightly above the pre-pandemic level. Overall, Comcast is slightly more sensitive to recessions than Verizon but still it is much more defensive than most stocks.

Comcast has raised its dividend for 12 consecutive years and thus it is a Dividend Achiever. On the one hand, the stock is currently offering an uninspiring 2.1% dividend yield. On the other hand, the primary reason behind the lackluster yield is the low payout ratio, which stands at 33%. In addition, the company has raised its dividend at an 8.1% average annual rate over the last five years. Thanks to the promising growth prospects of its Cable segment, its low payout ratio and its strong balance sheet, Comcast can easily continue raising its dividend at a meaningful rate for many more years.

The Interpublic Group of Companies (IPG)

The Interpublic Group of Companies provides advertising and marketing services worldwide. Its operations are well diversified amongst consumer advertising, digital marketing, communications planning, media buying, and data management services.

IPG has a narrower business moat than Verizon and Comcast. The media and advertising industries are evolving at a fast pace, causing the big advertising conglomerates to fall behind smaller, more innovative, and efficient firms, which can pivot faster than their slow-moving peers. As a result, IPG faces significant competitive headwinds.

On the other hand, IPG has proved resilient to recessions. To be sure, the company has posted record earnings per share in each of the last two years, despite the coronavirus crisis. Even better, thanks to its strong business momentum and an impressive expansion in its margins, IPG is on track to grow its earnings per share by nearly 50% this year.

Moreover, IPG offers a 2.9% dividend yield, which is more than double the yield of the S&P 500. In addition, the company has raised its dividend for nine consecutive years, at an 18% average annual rate. The high dividend growth rate has partly resulted from a low initial base but the company can keep raising its dividend at a meaningful rate for years thanks to its healthy payout ratio of 42% and its solid balance sheet.

Final Thoughts

As the S&P 500 has doubled off its bottom last year, there will be increased downside risk whenever the economy faces an unexpected headwind, such as a recession. The investors who seek to avoid high volatility and dramatic paper losses upon the next recession may consider purchasing the above three communication services stocks, which are characterized by superior resilience to recessions and above-average dividend safety.