More Is Better
The next must-have for every portfolio is at least one high-yielding dividend stock, said Cramer. Unlike all of the other rules about diversification, this is one rule where more is actually better.
Dividend-paying stocks may not be as sexy as growth stocks or speculative stocks but, given how a full 40% of the total return of the
S&P 500 has come from dividends over the past few decades, the power of dividends and compounding dividends simply cannot be ignored. Dividends are another stock safe haven, said Cramer, as yields rise when share prices fall.
That's why Cramer has coined the term "accidental high-yielder" to describe companies that yield over 4% after their stocks have taken big hits. A 4% yield seems to be the magic number that brings in new investors, noted Cramer, creating a floor for most dividend stocks.
How can investors determine if their dividends are safe? Cramer said he looks for earnings to be at least twice the dividend payout. For capital-intensive companies, cash flow can be substituted for earnings.
As for all the lingo surrounding dividend stocks, Cramer said there's only one date that matters for individual investors and that's the day before the ex-dividend date, a day he calls the "must own" date -- investors must own the stock on that day in order to receive the dividend.
Cramer said the last piece of the diversification puzzle is for investors to own a stock with foreign exposure. If the uncertainty in Congress has taught us anything, it's that sometimes being outside of the U.S. is a good thing. Investors don't need to think of exotic locations like China or Brazil, noted Cramer. Even good old-fashioned Canada or Mexico can make for terrific investments.
Cramer also endorses owning some ETFs for foreign exposure. He said the
iShares FTSE China 25
in China, the
iShares MSCI Japan
in Japan or the
Vangaurd MSCI Europe
in Europe all make great proxies for trying to pick individual foreign stocks.
Cramer said it doesn't matter what country you invest in, as long as it isn't the U.S.
What's Right on REITs?
In his closing comments, Cramer responded to a viewer's question about owning real estate investment trusts, or REITs.
He said that over the past 40 years REITs have outperformed nearly every other single stock out there. This is why he continues to recommend names such as
Federal Realty Trust
(FRT - Get Report)
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-- Written by Scott Rutt in Washington, D.C.
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