It is one of the smallest sector weights in the S&P 500, but telecommunications is packing big returns this year. Underscoring investors’ affinity for defensive, low beta stocks and exchange traded funds, the iShares U.S. Telecommunications ETF (NYSEArca: IYZ) is up more than 7% year-to-date and a scorching 13% over the past three months.
The telecom industry has offered attractive dividend yields, which has helped attract value investors in a year where many are shunning the growth category. For instance, the Vanguard Telecommunication Services ETF (NYSEArca: VOX), the largest telecom-related ETF, comes with a 3.76% 12-month yield and rose 9.9% year-to-date, whereas the broader S&P 500 gained 1.4% so far this year.
For its part, the $696.4 million IYZ, with a distribution yield of almost 3%, is home to some venerable dividend payers as well. For example, AT&T (NYSE: T) and Dow component Verizon Communications (NYSE: VZ) combine for 21 percent of IYZ’s weight. Those are two of the biggest dividend payers in the telecom sector. Additionally, AT&T and Verizon have lengthy track records of annual dividend increases.
Telecommunications ETFs like IYZ are also benefiting from the Federal Reserve backing off of raising interest rates this year, an important factor because telecommunications is one of the most rate-sensitive sectors.