One approach I sometimes take when looking for investment ideas for further research is to look at the average StockRanks for each sector of the market. You can find sector stats here.

Over the years, I’ve found this can sometimes highlight interesting themes, such as cyclical shifts and macro opportunities.

Recently, I noticed that the Telecoms sector currently boasts the highest average StockRank in the UK market. Consumer Defensives were in second place:

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I may return to the Consumer Defensive sector in the coming weeks. But in this piece I want to take a look at telecoms – and more specifically, the two top-ranked UK telecoms stocks:

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I was a little surprised to see these firms ranking so highly. Vodafone (LON:VOD) and BT (LON:BT.A) have rightly become bywords for destroying shareholder value over the last decade. While I think the problems they have faced have often been sector-wide as much as company specific, the outcome has been poor:

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Even including dividend income, total returns from BT and Vodafone are negative over the last decade – and a long way behind the FTSE 100.

Incidentally, while I often hear investors comment on the high yields these stocks have provided, the reality is that both have cut their dividends by c.50% in the last five years:

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In contrast, total dividend income from the FTSE 100 has risen. Even generous dividends haven’t been a great reason to hold shares in BT and Vodafone.

However, I think this situation could be changing, so I’m very encouraged to see the StockRanks supporting a more positive view.

Are telcos the new defensives?

Interestingly, I found that Telecoms was also the top-ranked sector in most other regions on Stockopedia; Europe, Developed Asia, the United States and Canada. I think there are some macro themes at work here, in addition to company-specific factors:

  • Mobile and broadband services are fast becoming near-equivalent to traditional utilities – try living or working without an internet connection;

  • As far as I can see, most telecoms network operators are unlikely to be heavily exposed to US tariffs or global trade disruption;

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