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"No dividend is safe if it can't protect itself," Jim Cramer told the viewers of his "Mad Money" TV show.
The key to owning a reliable dividend-paying stock in this market of incredibly high yields, said Cramer, is knowing which companies can afford to pay their dividends and which ones can't.
Case in point:
, which he also owns for his
Action Alerts PLUS portfolio. The company recently announced that it was cutting its dividend from $2 a share, or a 9% yield, to zero, which sent shares plummeting.
Cramer said it's easy to spot stocks like Freeport simply by looking at its earnings. Freeport was estimated to earn 94 cents a share in 2009, which is only half of its former dividend payment. Cramer said his first rule for choosing dividend stocks is to always be suspect of any company not earning at least twice its dividend.
Cramer said his second rule for dividends is to never depend on cyclical companies to pay steady dividends. Cyclicals, he said, simply have too much earnings volatility to pay a reliable dividend.
In the case of
, Cramer said its 9.2% yeild will certainly be cut due to the company's exposure to housing and its balance sheet that's loaded with debt. He said this titan of dividend payments simply doesn't have the business nor the balance sheet to support its payments.
Cramer said when it comes to choosing good dividend stocks, look for a long history of meeting or raising the dividend. But even those companies, he said, should still be scrutinized.
Cramer: Auto Bailout Plays
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One Less Dividend
Cramer talked with
chairman, president and CEO Dan Dimicco to get the latest take on the steel industry and that company's recent quarterly results.
Dimicco explained Nucor's decision to both raise its quarterly dividend while dropping its special dividends were separate decisions. He said a company's quarterly dividend shows its confidence in the market, its future and its cash flow, while special dividends are just that, special.
Dimicco said that from the beginning, Nucor's special dividend was advertised as a return to shareholders from the most ideal conditions. Now that those ideal conditions no longer exist, the special dividend is no longer appropriate.
Dimicco, in discussing the company's disappointing quarterly results, said that it takes a special company like Nucor to still be profitable while running at just 50% capacity. He further said it was the speed of the decline, not the decline itself, that caught the company off guard. Nucor, he said, had record earnings from the first to third quarters, only to find itself suddenly at 50% capacity in the fourth.
When asked whether President Elect Obama's proposed stimulus plan will benefit Nucor, Dimicco said he expects a large portion of the plan to include steel. With so many projects stalled due to credit and budget concerns, Dimicco said Nucor should be a beneficiary of the proposed plan by late 2009.
Cramer again recommended Nucor, saying he'd wait for a pullback before pulling the trigger. Nucor, he said, is the Obama steel play.
Cramer also talked with
president and CEO Jeff Gardner to find out how safe the company's dividend is.
Cramer last recommended Windstream on June 5 at $13.89 a share. With shares now trading at just $8.99 a share, Cramer expressed concern over the company's ability to pay its $1 a share dividend with just $1.02 a share earnings expectations for 2009.
Gardner said Windstream's dividend is safe due to the company's large free cash flow, estimates for which were just raised for 2009. He said the company's free cash has been remarkably consistent, allowing the company to pay its high yield.
When asked about proposed changes to the inter-carrier compensation rates by the FCC, Gardner said he believes the FCC sees the value of bringing broadband Internet access to rural America and suspects a favorable ruling in 2009.
When asked about increased competition from cable providers, Gartner was confident, saying the company has great product offerings and competes will against cable.
Cramer gave Windstream a subdued endorsement, saying that while he likes the company's story and feels its dividend is safe, its shares have been down since his last mention and he may not be the best judge of the company.
Am I Diversified?
Cramer talked with callers to see if their portfolios have what it takes. The first caller's portfolio included
Johnson & Johnson
Cramer said this portfolio has two utilities and that won't fly. He recommended selling Dominion and adding either
The second caller's top holdings included
Companhia Vale de Rio Doce
Cramer called this portfolio "perfect."
The third caller had
Martha Stewart Living Omnimedia
as their top five stocks.
Cramer called this portfolio perfection as well.
In the Lightning Round, Cramer was bullish on
International Business Machines
Cramer was bearish on
Want more Cramer? Check out "Jim Cramer's Portfolios of the Week" every Friday: Last week's edition: http://www.stockpickr.com/problog/1212/
Also take a look at "Cramer's Take on Top-Searched Stocks"every Monday, Wednesday, Friday: This morning's edition:http://www.stockpickr.com/problog/1215/
Check out Jim's rules and commandments for investing by
Read more of Cramer's Mad Money Lightning Round insights
For "Mad Money" performance statistics and other links, check out Mad Money stats
At the time of publication, Cramer was long Freeport McMoRan, Johnson & Johnson, Altria.
Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for TheStreet.com, Inc., and CNBC, and a director and co-founder of TheStreet.com. All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of TheStreet.com or its affiliates, or CNBC, NBC UNIVERSAL or their parent company or affiliates. Mr. Cramer's opinions are based upon information he considers to be reliable, but neither TheStreet.com, nor CNBC, nor either of their affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Cramer's statements are based on his opinions at the time statements are made, and are subject to change without notice. No part of Mr. Cramer's compensation from CNBC or TheStreet.com is related to the specific opinions expressed by him on "Mad Money."
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