Despite the Bank of Canada’s emergency interest rate cut by 50 basis points and the U.S. Federal Reserve’s rate cut to 0%, markets are still in panic mode. The lower cost of debt should raise the fair value of all dividend-income growth stocks. So, why are stocks like AT&T (NYSE:T) or BCE Inc. (TSX:BCE) failing to hold their value?
These stocks pay a dividend that yields 6.97% and 6.2%, respectively.
Telecom services stocks staged a notable v-shaped rebound in the last week but are still well of their highs. Investors are letting the Fed and the government buy corporate debt and bonds.
This increases liquidity and maintains a functioning market. For income investors, the dividend is hardly guaranteed. Plus, those who are holding losses and are short of cash are selling their prized stocks.
Fundamentally, AT&T, BCE, and Verizon (NASDAQ:VZ) are sound companies. Their debt levels, albeit unfavorably high, are inexpensive to maintain.
Worried investors are concerned that mobile phone plan cancellations and lower subscriptions for streaming content. In China, a 1.2-million loss in subscribers at China Unicom in January and then 5.6 million subscribers lost in February is alarming. The same could happen in the Western world and Europe.
The takeaway is that stocks offering high dividend-income are not immune to falling. Investors should not rush to add to the telecom sector.
