Widow-and-orphan stocks were long considered to be among the most desirable of stock options in time past. Essentially, a widow-and-orphan stock is any stock that carries a very low element of risk while paying out a high dividend. This sort of safe stock is often associated with companies that have long standing track records of consistent positive performance in all sorts of economic climates.
In the past, some widow and orphan offerings were associated with either companies that held a monopoly in a given industry, or were considered to provide goods and services that were so essential that the typical consumer could not do without the product. A classic example of a widow-and-orphan stock is a utility company. Usually, a given area has only one option for an electric service provider, or a supplier for natural gas. This creates a situation where the stock of the utility company is anticipated to perform at an attractive level regardless of the economic circumstances that may impact customer consumption of other and less necessary goods and services.
The widow-and-orphan stock today continues to be associated with corporations that tend to have more or less a monopoly on a given sector of the consumer market. Because there is little or no competition among suppliers, the stock remains highly desirable and consistently generates excellent dividends as the customer base increases with the population. Because there is almost no chance that the company will encounter lean periods, investors will always be interested in acquiring and holding on to additional shares of the company’s stock.
However, it must be understood that circumstances can change, and the widow-and-orphan stock of a company may cease to be considered a widow and orphan. This happened in the middle of the 1980’s, when the government deregulation of the telecommunications industry opened up that formerly non-cyclical industry to the creation of a number of new companies offering specialized communication services and local competition for even local telephone service. Thus, even a long standing widow-and-orphan stock can at some point shift and change into another form of stock classification, while still remaining very desirable.
