Cramer: Why DuPont is Your Safe Haven
The “accidental high yielders” are those companies whose stocks have been driven down to where their dividends are producing a higher-than-expected yield. During the 2008 economic downturn, those who bought when yields were high and prices were low made money, Cramer said. Now is the time to again take advantage of these accidentally high-yielding companies, particularly Cramer fave DuPont, which boasts a 4.3% yield right now.
A diversified chemicals company, DuPont produces everything from performance coating for automobiles to electronic materials for technology and even seeds and crop-protection products that compete with Monsanto.
In reporting its first quarter results on April 27, DuPont delivered an upside surprise of $1.24 of earnings per share, which is 18 cents more than the analysts were expecting, and its revenues rose 24% year over year. Perhaps more importantly, DuPont raised its guidance for the full year to reflect expectations of stronger sales growth and improved margins as the world’s economies continue to expand.
When the economy slowed in 2009, DuPont responded by streamlining its business units, cutting costs and improving its relationships with customers. Now, Cramer thinks those actions are paying off. Cost savings for 2010 is expected to total $760 million and Cramer believes a new restructuring initiative could lead to long-term savings in excess of a billion dollars from 2010 through 2012 and gives credit to CEO Ellen Kullman, who “is perhaps one of the best and most unheralded chief executives in the country.”
Safety and consistency are the things to look for when researching dividends, Cramer said. DuPont seems to have both, having paid out 423 consecutive dividends since 1904, and Cramer expects it to cover its dividend payout 1.8 times over in 2011.
“Not only is this dividend safe,” Cramer said, “but I think DuPont’s in a position to raise the darned thing.”
When it comes to accidental high yields, buy in stages based on the dividend, Cramer said. With DuPont, Cramer thinks investors should buy now and wait until shares hit $36.44 where the yield will increase to 4.5% next quarter. Cramer thinks you should buy more if it comes down to $32.80, where DuPont would yield 5%. It would yield 5.5% if a share goes for $29.81. As it lowers, the stock gets cheaper and gives you more of an income as the yield increases.
It is important to reinvest your dividends because they can compound over time, Cramer said. DuPont’s stock is down 16% in the last ten years, but it is up 21% when you factor in reinvested dividends. Even if DuPont’s stock does nothing in the next 16 years, Cramer thinks you could double your money so long as dividends are reinvested.
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