Dividend Stocks Find a Floor, Cramer Says
Stocks as varied as Freeport McMoRan, Walgreen, Procter & Gamble, Eaton and Nucor, he noted, “have all held or at least been stopped from going down at that level.”
“Four percent seems to be the level where, especially after taxes, you get a considerable benefit over bonds, and I have to believe that (Federal Reserve Chairman) Ben Bernanke knows that and embraces it,” Cramer said.
As an example, Cramer examined Freeport, a company that is subject to cyclical fluctuations.
“This company’s a copper and gold miner. Its stock should be back in the mid-20s by now — that’s how hated copper and gold have become — and even though both commodities are nowhere near as low as they were in 2008, the market has such conviction in their potential declines that you’d expect this stock to be at a much lower level by now,” he said. “Yet every time Freeport McMoRan gets to $32, where it yields 3.9 percent, it stops. Idle? I don’t think so. There’s just tremendous demand when it gets down there.”
Procter & Gamble, which reported disappointing figures Wednesday, was also saved by this level.
“Do you have any doubt this stock should be in the mid $50s? I don’t, but I think it stopped there because people are now being paid to wait for Wall of Shamer CEO Bob McDonald to be fired,” Cramer said.
Likewise, Walgreen, whose earnings recently disappointed, recently bumped its dividend from 90 cents to $1.10 per share, which seems to have stemmed the decline.
There’s also Nucor.
The steel maker, which Cramer said was “superior to U.S. Steel and always has been,” was hardly 23 percent better. Yet after Nucor cut its forecast this week, its stock was only down 5 percent for the year, while U.S. Steel was down 28 percent.
“The difference? U.S. Steel pays a meager dividend, while Nucor pays a nice fat one,” Cramer said.
While it’s true that the stocks could easily drop enough to offset any gains and deal investors a hefty capital loss, he added, that has not happened yet.
Cramer suggested keeping an eye on levels in the sell-offs, especially that investors seem to be convinced that a drop in commodity prices will hurt stocks broadly, even those that benefit from low commodity prices.
“The floor of a four percent yield is just too darned uniform to be coincidental as long as Bernanke keeps rates low,” he said. “It’s a low level put, but it’s a put nonetheless, and it’s shown no sign of losing its luster even during yesterday’s hideous pasting.”
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