What is a Widow and Orphan Stock?
Widow and orphan stocks are low-risk securities that pay high dividends.
How Does a Widow and Orphan Stock Work?
Widow and orphan stocks typically maintain their dividend payments to shareholders even through difficult financial times, especially in bear market conditions. Such stocks do not grow substantially in value, but they offer a reliable, low risk investment opportunity.
The expression 'widows and orphans' comes from the fact that investors consider these stocks a safe harbor during economic storms, particularly fitting for 'widows and orphans,' who are otherwise the most vulnerable members of society and the least able to face economic downturns.
Why Does a Widow and Orphan Stock Matter?
It used to be conventional wisdom that stocks like General Motors, Ford, AT&T, Merck, General Electric, Citigroup and American Express were widow and orphans stock, with fundamental underlying values and reliable dividends even in hard economic times. However, the falls in the market during the 2008-2009 recession (i.e. some of these blue chip stocks have fallen 70%-80% from their 2000 levels, for example) have recast the definition of widow and orphan stock and sent investors on a search for new stocks to fill this niche.