Widow and Orphan stocks offer relatively low-risk stocks as an investment opportunity while providing a high rate of dividend. Usually, stocks that classify as Widow and Orphan stocks belong to large, mature and reliable companies that operate in the non-cyclical business sectors. In simpler terms, widow and orphan stocks are low volatility stocks that offer higher rates of dividend and the usual holders of this type of stock are blue-chip or large and reliable companies.
The reason most companies with stocks classified as widow and orphan stocks are large and belong to non-cyclical business sectors is that even during an economic downfall, these companies still have solid footing and aren’t affected as strongly as companies in the rest of the market.
Widow and orphan stocks may not provide the highest rate of returns, they are low but steady and cushioned by the dividend provided and their powerful or even monopoly-like position in the market. The exact opposite of the widow and orphan stock concept is an investment in growth stocks that offer a higher return while being considerably more volatile and also paying out little to no dividend to the stockholders.
The term widow and orphan stocks come from the idea that these stocks offer a haven to investors during economic turmoil, particularly fit for ‘widows and orphans’ as they are the most vulnerable groups in society who aren’t adequately suited to face an immense economic downturn.
As the mindset goes for most traditional investors and new investors to invest in companies like ITC, Reliance Industries and Tata. Why? Because these are reliable, mature and resilient stocks and even if the country sees a major economic downfall these companies won’t go down under. Widow and Orphan stocks offer:
Widow and Orphan stocks allow investors to set up their investing base and potentially take a few bigger risks with other stocks since they know they have a haven in the condition of loss in those areas. As a simple exemplary question, when starting your investment journey, would you first invest in safer opportunities that provide stability to your portfolio or would you directly jump into highly volatile and dynamic markets like penny stocks?
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