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Dividend Divination

On Monday the Mad Money host kicked off a weeklong look at companies that have announced dividend boosts, with Cramer highlighting the stocks he likes best.

First up, Hasbro . On Thursday the company increased its dividend by a massive 25 percent, the fourth-largest percentage dividend increase so far this year.

“Dividend increases are the true harbingers of what the health of the market is,” Cramer said, “not the oil futures, the dollar or gold.”

Today the game and toymaker announced a fantastic quarter, with earnings coming in at $1.09 per share, 28 cents higher than the streets’ consensus, and revenues at $1.38 billion, or $400 million above what the analysts were looking for. This caused HAS to leap $3.91 or 12.7 percent in a single day.

Cramer told viewers they should have watched the company’s dividend growth, and that’s one of the reasons he recommended Hasbro on June 19, when it was trading at $25.14.

One of the best ways to make money is to purchase stocks with high yields and then reinvest these dividends. Cramer said with Hasbro this effect is amplified when the company raises its dividend, giving you compounding and increasing dividends.

These high yielders are less susceptible to getting annihilated in a brutal sell-off, Cramer said, because of something called yield support. As a stock price goes lower, its dividend yield goes higher, and right now Hasbro has a 2.8 percent yield, but if it was to fall to $33.33, it would yield 3 percent, and at $28.57 it would have a juicy 3.5 percent yield. Cramer said he would be a buyer of this stock at $33 or less because of that yield.

Cramer reminded viewers that they need to figure out if that dividend passes the “is it safe?” test. Did the company earn enough money to cover the payout? And he likes it when a company’s earnings per share are equal to twice the size of the annual dividend. HAS is expected to earn $2.13 a share in 2010 and $2.76 in 2011, and that’s more than twice its new annualized dividend of $1 a share. Cramer said this dividend is protected with room to raise it more in the future, something that Pitney Bowes did just last week.

Also, investors want to look at the underlying business, which in Hasbro’s case is in fantastic shape. Plus, HAS is expected to launch a new TV network called The Hub with Discovery Communications . All of this should allow the company to make more money and keep increasing that dividend.

The bottom line: Learn from HAS and the other hallowed dividend raises. The Mad Money host will be talking about this topic all week.


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