A dividend increase isn’t always a sign of a rosy financial picture. Karen Finerman plots the dividend dupe and how to protect against it.

Dividend or Dupe?
                                     Dividend Increase Date                       Return Since

MBIA                                           2/27/07                                     -78%

Ambac                                                  7/25/07                                     -86%

Northern Rock                              5/25/07                                     -89%

New Century Financial                  11/2/06                                     -99%

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And Lehman Brothers

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[LEH  Loading...      ()   ] just got in on the action, Karen said, raising its dividend this week even though she predicts the bank has farther to fall. She continues to short the stock.

Protecting against a dividend dupe is easy, though. Buy the puts, Karen said, which makes it so there’s a finite downside. No one wants to be invested in the next New Century Financial.

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Trader disclosure: On Jan 30, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Finerman's Firm Is Short (IJR), (IYR), (IWM), (SPY), (MDY), Finerman’s Firm and Finerman Own (CROX), (HD), Finerman Owns (CROX) Calls, Finerman Owns (GS), Finerman’s Firm Is Short (LEH) and Owns (LEH) Puts Finerman’s Firm Owns (MO), (SUN), (TSO), (VLO), (WMT), (YHOO); Najarian Owns (AAPL) Calls, Owns (C), (CSCO), (ETFC), (MCD), (MS), (MSFT), (XLF), (RMBS), Calls, (YHOO) Calls; Macke Owns (ATVI), (YHOO), (DIS), (INTC)

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