Pedestrians pass a Verizon Wireless store on Canal Street in New York. © AP Photo, John Minchillo

Compiled from StockScouter ratings by Verus Analytics

Time to dial up the dividends?  High-yield telecom giants Verizon (VZ) and AT&T (T) both appear on StockScouter’s latest list of 10 stocks to watch this week.

Verizon, which boasts the nation’s largest wireless network -- in fact, the deal to buy out Vodafone’s (VOD) remaining stake in its mobile business closed Friday -- offers a 4.6 percent yield and has increased its dividend payout for seven straight years.

Verizon gets a ‘9’ rating from StockScouter, where ‘10’ is a perfect score. Based on StockScouter's analysis, VZ shares are expected to significantly outperform the market in the next six months with very low risk.

AT&T, meanwhile, is the largest telecom provider in the United States and trails only Verizon in mobile customers. It sports an even higher 5.6 percent yield. With a rating of ‘8,’ StockScouter also expects AT&T shares to outperform with low risk.

Bryan Perry of InvestorPlace says Dow Jones Industrial Average ($INDU) dividend stocks such as Verizon and AT&T are “your best bet” for steady and reliable income. “AT&T stands out,” he says, “because, unlike some dividend stocks with above-average yields, it has great fundamentals.”

But these aren’t the plodding phone companies of old. The constant evolution of the mobile industry requires heavy capital investment for network upgrades and presents an ever-changing set of challenges.

For example, instant messaging platforms such as Facebook (FB) acquisition WhatsApp have eaten into the billions of dollars in fees that many mobile carriers are able to charge for texting. Chetan Sharma, an independent wireless analyst in Issaquah, Wash., estimates that U.S. text-messaging revenues amounted to $21 billion last year. But, he told Bloomberg, he expects that figure to drop 3 to 4 percent in the U.S. this year and to begin dropping worldwide after 2016.

Still, for investors looking for steady income and the potential for market-beating growth, the two titans of U.S. telecom may answer the call.

Read the full Scouter report on Verizon here, and the full report on AT&T here.

StockScouter Top 10 for Feb. 21

Company

Sector

Dividend yield

Forward P/E

Scouter score

Calpine (CPN)

Utilities

NA

19.7

9

Verizon (VZ)

Telecommunications

4.6%

11.3

9

AT&T (T)

Telecommunications

5.6%10.88

Williams (WMB) 

Oil & gas4.0%29.78

Ambev S.A. (ABEV)

Beverages & brewers0.6%24.010

Blackstone Group (BX)

Asset management

7.4%

9.2

10

EMC (EMC)

Digital data storage

1.6%

11.7

10

GNC Holdings (GNC)

Health & nutrition retailer

1.4%

12.3

10

Graphic Packaging Holding (GPK)

Packaging & containers

NA

11.8

10

IBM (IBM)

Technology

2.1%

12.7

10

StockScouter beats the market

We think the StockScouter rating system developed by Verus Analytics for MSN Money is one of the best tools you can use when you're trying to decide where to invest.

StockScouter looks for stocks whose business fundamentals, price behavior, valuation and stock-ownership characteristics appear to predict a rising price in the future, based on how those factors have influenced stock prices in the past.

The system assigns each stock an expected six-month return and balances that return against the stock's expected volatility.

Scouter rates stocks on a scale of 1 to 10, and ratings can change daily. Ratings and data in the chart above were current as of this article's publication date.

In addition to the daily top 10 list described above, StockScouter is used by investment research firm Verus Analytics (previously known as the quantitative business unit of Gradient Analytics) to generate a monthly benchmark portfolio of stocks that, refreshed monthly, has outperformed the market since its inception in August 2001.

An investor who began in 2001 by investing in each of the benchmark portfolio's top 10 stocks at the start of the month, selling them at the end of the month and then starting fresh with a new group of 10 stocks, would have generated returns, before trading costs and taxes, of 1,039 percent through Dec. 31, 2013.

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Writer Jon Markman, at the time a columnist for MSN Money, collaborated with company researchers on the tool.

Markman suggested rolling over the top 10 stocks every six months to hold down trading costs, a strategy that might be a better fit for most investors; that would yield different results, which would vary based on your starting point.

Performance through Jan. 31, 2014

Full 50 position portfolio    

Index

1 month

3 month

6 month

1 year

Since
inception

Average
annual
return

Portfolio

-3.1%

2.2%

6.9%

18.9%

557.7%

16.8%

Nasdaq

-1.7%

4.7%

13.2%

30.6%

102.5%

7.8%

S&P 500

-3.6%

1.5%

5.8%

19.0%

47.2%

4.3%

DJIA

-5.3%

1.0%

1.3%

13.3%

49.2%

4.3%

Top 10 portfolio

Index

1 month

3 month

6 month

1 year

Since
inception

Average
annual return

Portfolio

5.8%

2.4%

1.%

5.4%

973.0%

20.7%

Nasdaq

-1.7%

4.7%

13.2%

30.6%

102.5%

7.8%

S&P 500

-3.6%

1.5%

5.8%

19.0%

47.2%

4.3%

DJIA

-5.3%

1.0%

1.3%

13.3%

49.2%

4.3%

Inception: August 2001