So far, dividends haven't done the job. Last night I recommended Weyerhaeuser
(WY)
because I liked the transaction they made with International Paper
(IP)
where they became much more of a pure timber play than before. They got rid of a commodity division with no growth for $6 billion, which they needed to pay down debt and fix up the balance sheet.
Once they did that this week, they became, in my eyes, the best play on a housing recovery with a great deal less risk because they pay almost a 4% dividend.
But I caveated the segment because I didn't want anyone to think that a 4% dividend would stop it from coming down. It didn't for AT&T
(T)
and it didn't for Verizon
(VZ)
-- those had to go to 5% to stop -- and it hasn't for BP
(BP)
which blitzed right through the 5% level to 5.5%. I know BP is challenged when it comes to management. I know that BP is in the ETFs that could force it, on short-selling alone, to go to $55 before someone would say, "An oil company yielding more than 6%, let me at it."
And it has meant absolutely nothing for one of my absolute favorite dividend plays, Enterprise Products Partners
(EPD)
. (I believe some hedge funds borrowed a lot of money, at a low repo rate from brokers, and bought this stock and did the arbitrage like it is a mortgage bond, and now they are unwinding the trade, causing EPD to drop endlessly.)
What's going on? Why aren't these safe dividends enough protection for people who want to get yield that's much better than Treasuries? I think it is because the fear factor is way too high. The fear that somehow the companies -- even the ones that are going to grow their dividends -- are going to cut the dividends is playing a big role.
I think the worry is wrong. If you buy high-quality companies with good dividends that are easily paid for out of current cash flow, I am sure you will do better than most asset classes, because you have done better, particularly when the cash rates are so low.
It is also a signal that we are in a moment where stocks are actually, for real, cheap. I don't even know if anyone would deny that anymore. When you get these 4%-5% yielders that are good businesses and the yields are big because the stocks have done nothing while the dividends have been endlessly increased -- like General Electric
(GE)
-- you are getting something you haven't gotten in this market in many years: bargains.
I am sticking with the dividend as protector story. It has NOT worked so far. But with rates on cash having dropped severely and rates on stocks that have dropped severely, we may have reached a level where dividends are worth more than we think.
At the time of publication, Cramer was long BP and Verizon.Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS. Watch Cramer on "Mad Money" weeknights on CNBC.
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