Cramer: Sell Bonds, Switch Into These Dividend Payers
Use the rally off Thursday’s 30-year Treasury auction to take profits on bonds, Cramer told viewers during “Stop Trading.” Then take that money and buy companies with high payouts.
“We know that it was down the worst that it has been in ages,” Cramer said of the bond market. “So the bounce is a great opportunity to lighten up on bonds and switch into higher-producing equities.”
Which stocks did he have in mind? Well, Cramer returned to a group he has liked for some time, the master limited partnerships, where he recommended Linn Energy and Kinder Morgan Energy Partners . He likes MarkWest Energy as well, which enjoys some of the same benefits of an MLP, such as a tax shield on dividends and distributions.
“These have been really adept at raising their distribution each year,” Cramer said, “and also, of course, giving you that capital appreciation.”
Cramer said the total return for some of his favorite dividend-paying stocks has been “much better” than that of bonds. During Wednesday’s “Mad Money” he pointed to the strong performance of four stocks he highlighted back on March 7: Altria , AT&T , Kinder Morgan, Plum Creek Timber and DuPont . Since then the group is up an average of 16 percent, but that number jumps to 20 percent if the dividends were reinvested. Compare that with the S&P 500’s 12 percent gain over the same period, or the mere 4 percent return from Treasurys as represented by the iShares Barclays 7- to 10-Year Treasury ETF . And that’s without taking the favorable tax treatment for dividends into account.
Cramer was especially bullish about this strategy while interest rates were low, dragging down the payout that Treasurys may have offered, but he’s still bullish on the idea even as rates begin to rise. Why? Because President Obama’s tax deal with Republicans should keep that favorable tax treatment for dividends in place.
“It just makes it so that whatever you think could happen in the bond market,” Cramer said, “is not going to be as good as what’s going to happen in these stocks. And obviously they can raise their distributions.”
Of course, any invest carries risks. For Linn Energy it could be failing to successfully hedge against oil and gas prices. For Kinder Morgan it might be the sudden and drastic decline in the use of natural gas. But Cramer maintained that they still carry less risk than bonds and have performed “pretty good” in an environment of rising interest rates.
Call Cramer: 1-800-743-CNBC
Questions for Cramer? firstname.lastname@example.org
Questions, comments, suggestions for the Mad Money website? email@example.com