Widow And Orphan Stocks: Do They Still Exist

In the past, the term “widows and orphans” was used to describe stocks with a relatively high degree of safety and dividend income. Because they had relatively minimal risk and provided income to feed the family, these kinds of stocks were literally thought to be the only investments suitable for widows and orphans. The term is noteworthy because it was generally used during market bottoms, but today it means something different.
A widow-and-orphan stock was the blue chip stock of its day: the stock of a large well-known firm that was thought to have an unassailable market leadership position and that paid a “good” dividend. This term was generally applied to utility stocks (electric, gas and telephones). Utilities are often referred to as widow-and-orphan stocks because of their monopoly (or, if you prefer, government-mandated market leadership) and dividend yield. Banks were excluded from this class as the result of their involvement in the bubble and crash of 1929. It was not until several years after the government-instituted regulations like the Glass-Steagall Act, which separated investment banking and “regular” commercial banking, that “widows and orphans” was again applied to commercial banks. Depending on the business cycle, the term was also applied to railroad and auto stocks.