(Bloomberg) — An uncertain economy and dangerous geopolitical backdrop have investors buying into technology’s most popular haven trade: dividend-rich telecommunications stocks.
After a dismal 2025, telecom is one of this year’s top performing sectors in the S&P 500 Index, rising 9.6% while the broad benchmark is down 3.3%. Shares of Verizon Communication (VZ) Inc. are up more than 19% in 2026, and AT&T Inc. (T) has gained 13%. Meanwhile, the Nasdaq 100 Index (^NDX) fell into a correction in March, and a Bloomberg gauge of the Magnificent Seven tech giants has tumbled 13% from its October high.
The reason for the divergence is fairly simple. With the economic outlook increasingly dicey, investors are prioritizing predictable cash flows and above-average dividend income, which the telecoms provide, according to Sergey Dluzhevskiy, portfolio manager at Gabelli Funds.
“You have a market rotation away from some of the technology-oriented names and the AI trade broadly to more defensive sectors,” Dluzhevskiy said.
The dividend yield for the S&P 500 Communications Services Industry Group Index is 4.3%, roughly in line with the yield on 10-year Treasuries, which fell below 4% in late February and early March. Individually, Verizon shares boast a 5.6% dividend, while Comcast Corp.’s (CMCSA) payout is 4.8%.
“When you have Treasury yields go lower, higher-yielding dividend stocks look attractive,” said Randy Hare, a portfolio manager at Huntington National Bank. “Your dividend aristocrats are outperforming the market.”
Dividend stocks are favored by investors who are worried about future growth and want to protect their portfolios in times of market turmoil by generating predictable returns. That aligns with the current market sentiment, where the destabilization brought on by the Iran war is running into concerns about the billions of dollars megacap tech companies are spending to build out the infrastructure for artificial intelligence. Those AI investments are propping up a wide array of industries and stocks that could slump if the capital expenditures slow.
“In an age in which people become nervous about growth — and I think that, you know, in 2026 we’ve seen that pretty substantially — people start looking at downside protection,” said Bill Mann, chief investment officer and portfolio manager at Motley Fool Wealth Management. As such, a dividend “becomes a natural attractor for investors.”
Verizon shares have been leading the telecom group this year, soaring 23% in the first quarter, their best quarterly performance since 2010, after losing 7.3% in the final quarter of 2025. The rally started in January after the company reported its largest gain in mobile phone subscribers in seven years and expanded its buyback program to as much as $25 billion over the next three years. AT&T’s stock price also jumped after a stronger-than anticipated earnings report.
Even the big telecommunications stocks that aren’t in the green for 2026 are beating the market. T-Mobile US Inc. shares are down 1.2% this year and Comcast Corp. shares have shed 0.8%, both of which are better than the performance of the S&P 500 and Nasdaq 100. Plus, the stocks provide solid dividend yields — Comcast’s is about 4.8%, while T-Mobile’s is 1.9%.
Telecommunications companies are also part of the popular HALO trade, which is short for high asset and low obsolescence. Their fiber-optic cables, cellular towers, data centers and more are seen as providing staying power in an evolving economic environment. In other words, while they’re also investing in AI for their internal operations, customer service and network performance, they are more insulated from the build-out race than other parts of the technology industry.
“You can’t replace fiber optic telephone lines with AI,” said Hare.
While dividend stocks may not generate the stratospheric returns of the market’s highest fliers, like the recent boom in memory and storage shares, they can offer some protection from losses. And in the case of telecom companies, they also have reliable businesses providing services that are essential to US consumers.
“I think the pandemic proved, and truly highlighted, the essential nature of silicon network and broad digital infrastructure as well as the value of connectivity in today’s economy,” Gabelli’s Dluzhevskiy said. “In the recessionary scenario, people may cut other bills but will hold onto their wireless and broadband services. I think the combination of many of those factors played into a strong performance for those things.”
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