While dividend stocks might not seem sexy, Cramer said that, put simply, dividends make money. In fact, nearly 40% of the total gains from the S&P 500 since 1926 have come in the form of dividends. Over the past decade, that percentage is even higher.
Dividends aren't merely safety plays for retirees and cautious investors, said Cramer. They are a smart strategy for making money. He explained that as a stock price falls, its dividend yield increases, which in turn makes in more attractive to investors. Stocks that hit a 4% yield represent terrific long-term bargains, he noted, which is why stocks typically stop going down once they hit 4%.
But beyond making money, Cramer said dividends, and especially dividend raises, are management's way of telling investors that things are going well at the company. A solid, steady dividend that gets raised regularly is a hallmark of a company that's stable and doing sell.
Not all dividends are created equal, however, cautioned Cramer. Dividend yields that are not sustainable are red flags. Just look at what happened to Radio Shack (RSH - Get Report) and supermarket SuperValu (SVU - Get Report) in early 2012 for a lesson in dividends gone awry.A company's earnings per share should be at least twice that of its dividend payout to be considered safe. For companies with high capital needs, like telecoms, he said investors can look at the cash flow as another metric to see whether the dividend may be in jeopardy.