Jim Cramer on How Investors Know If a Company's Dividend Is Safe

Publish date:
Video Duration:

Looking to know whether or not a company's dividend is safe?

Jim Cramer breaks it down for you.

Watch the video above for more.

Video Transcript:

Katherine Ross:
All right. So, Jim, over on Twitter this morning, I got a really important question that I think a lot of investors at this point are asking themselves, and that's, "How can you determine whether or not a company's dividend is safe?" So, when you're talking to the portfolio, give us some insight on just what, like high level, what are you looking for?

Jim Cramer:
Well first, I look to see if it's too big. Everyone told me that Macy's dividend was safe and then when got to eight, nine, I said, "Whoa. Whoa, not safe." Now, Kohl's has a very good balance sheet and they buyback, but Kohl's dividend is 16%. Uh-uh, no. If it's got a dividend that is far in excess of what the classic utilities are offering then I've got to tell you don't risk it. Don't risk that dividend. Another one that a lot of people love that they always used to call on Annaly Capital. Annaly Capital Management, 16%. This stock went down from 11 to five in a heartbeat. Just, these are the ones that you are attracted to by yield and the yields just ... well, let's just say you don't want to be there.

Jim Cramer:
I find the drugs have yields that are good. I'm not sure about the banks. The banks look like they're good but I just think that when you look at some of these things, like a mortgage read, like Annaly, it's [inaudible 00:10:06] because there's forgiveness on these mortgages. So that's something to watch. The one that is at the fulcrum right now, literally at the fulcrum for me is Wells Fargo. I just don't know. I don't know. I think Wells Fargo is safe but you know what? I said that, I said that you could keep your money in Bayer and it was safe, and people said, "Oh, he recommended Bayer because it was my time on the cross." I am not saying that I think that Wells Fargo's safe. I'm saying that it sure seems like it could be because Charlie Shark just bought a lot of stock and it yields seven. If I could get my arms around that one, that is the one that I think's great.

Jim Cramer:
Now, let's switch back again to something that we screwed up on for action alerts. Schlumberger. Okay, that's got a 14% yield. Uh-uh, not going to cut it. I felt that Ford when it got to 10, they told me that Ford, not to worry. And I was saying, "Do not trust. Do not trust that dividend." I'm looking at GM right now. GM, yield's seven, with the president just making that vicious assault. I don't know. I don't want to touch that one either. And then I look at the cashflow obviously but the cashflows, you don't know. Did you know that Macy's was not going to open? I mean, it's kind of like, let's give you another one. Tanger Factory. This is the one. Tanger's the off-price place. Everyone loves off-price, right? $6 stock. It's down 10% today. It yields 23%. I find that 23% suspicious. I'm skeptical of it, and that's a very well run company. Another one that I think the world of, Simon Property Group. They paid $33 billion in distributions. That yields 15%. It's down 7.7% today. I don't know. I don't know. Really, really interesting.

Catch up on the Latest Videos on TheStreet!