Given today’s uncertain market environment, investors can best protect their portfolios with dividend-paying stocks, said Jim Cramer on CNBC’s “Mad Money.”
Cramer likes dividends for a number of reasons. Compared to U.S. Treasury bonds, investors can get a much higher yield with dividend-paying stocks. By comparison, income generated by dividends is taxed at a much lower rate, too. Also, the U.S. government isn’t likely to raise the yield on bonds, but companies often boost their dividends.
After considering the power of dividends, Cramer devised a portfolio of dividend-paying stocks for today’s market environment.
To compile his list, he consulted the New York Stock Exchange Century Club, which recognizes successful American companies of 100 years or more. Then, he narrowed his list to companies that raised their dividends every year since 1980.
Of those 19 companies, Cramer looked for businesses that grew their dividends at the fastest compound annual rate. He also made sure to include a range of sectors.
In the end, Cramer was left with the five following stocks — he only recommends buying these stocks on a pullback, though.
Read on for Cramer's Top 5 Dividend Stocks
Consolidated Edison (ED)
Based in New York City, Consolidated Edison is an electric utility that pays a 4 percent dividend yield. The company has a great track record of raising its dividend, too, Cramer said.
ConEd is engaged in transmission and distribution, not power generation, which means it doesn’t need to worry about oversight from the Environmental Protection Agency. Cramer thinks it will enjoy more customers in the near future, too, as residential construction is thriving in the greater New York City area.
Read on for more of Cramer's Top 5 Dividend Stocks.
Sherwin-Williams (SHW)
While Sherwin-Williams only pays a 1.2 percent dividend yield, Cramer noted it has a great track record of raising its dividend. The paint company has increased its payout at a 20 percent compound annual growth rate since 1980, he said.
As the company’s latest quarterly results show, the paint business is strong. It currently benefits from lower raw costs, too.
Read on for more of Cramer's Top 5 Dividend Stocks.
Abbott Laboratories (ABT)
Abbott Labs
Drug manufacturer Abbott Laboratories currently boasts a 3.3 percent dividend yield. The Abbott Park, Ill.-based company has increased its payout at a 14 percent compound annual clip since 1980, too.
Abbott plans to split into two companies later this year with the branded drugs business going by the name AbbVie. Cramer likes both businesses and will decide which he prefers as the split draws near.
Read on for more of Cramer's Top 5 Dividend Stocks.
Pepsico (PEP)
Pepsi
Those thirsting for dividends should check out Pepsico’s 3.1 percent dividend yield. The food and beverage maker has increased its dividend by 12 percent annually for the last 32 years, Cramer said.
“Pepsi’s a classic turnaround story, but the turn is only just beginning to become obvious,” Cramer said. “I think it’s working, but you’re being paid handsomely to wait until everyone knows it.”
Not only is Pepsi currently benefiting from lower raw costs, it also has less international exposure than rival Coca-Cola.
Read on for the last of Cramer's Top 5 Dividend Stocks.
Target (TGT)
J.reed
Target Store
Retailer Target sports a 2 percent yield right now. It’s not a huge dividend, Cramer admitted, but the company has grown its payout by 11 percent annually since 1980.
Like rival Wal-Mart, Cramer thinks Target’s stock has moved too much lately. Both companies are benefiting from little European exposure, cheaper gas prices and lower food inflation. Cramer thinks Target is "best of breed," though.
Read on for Cramer’s Plays on a Potential Housing Rebound
—Reuters contributed to this report
When this story was published, Cramer’s charitable trust owned Abbott Laboratories and Coca-Cola.
Call Cramer: 1-800-743-CNBC
Questions for Cramer? madmoney@cnbc.com
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