Dishing on Dividends
If the Federal Reserve cuts rates the way Cramer wants them to, then Emerson Electric could be a great stock to own.
Emerson is what Cramer called a smokestack industrial stock. It makes components needed to run power plants, treatment plants, telco networks, kitchen appliances – you name it. And cyclicals like these tend to outperform during rate-cut season, he said.
Emerson has a 2.2% dividend that should get more appealing as interest rates drop. That income will come in handy as investors get less return on their cash. More importantly, though, Cramer recommends reinvesting the dividend to put it to work like compound interest.
Here’s how it works: The first dividend payment is used to buy more shares. When the second dividend is paid out, investors get 2.2% on the original stock and the stock bought with the first dividend payout, and so on. So even modest dividends matter.
Two other reasons EMR is a good stock: Fifty-five percent of sales come from overseas, and order growth is up 5% to 10% for the three months ending in July. The weak dollar alone contributed three percentage points to the order growth, the company said.
“Emerson is the stock to buy if you expect Bernanke to do the right thing and cut rates sharply," Cramer said. "Even if you don't believe that, I still think the stock will hold its own."
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