One of the most important lessons that Jim Cramer has learned over the years is not to trust all stock buybacks.
"They aren't created equally and they aren't all a place to run to in a selloff. In fact, many buybacks disappear when times get tough and can't be relied upon, as we saw when [oil stocks] came crashing down when oil plunged in 2014," the "Mad Money" host said.
Buybacks are when companies repurchase their own shares in the open market in order to take them out of the equation, thus reducing the number of shares outstanding and boosting the earnings per share.
Often times, buybacks are a way for companies to reward their shareholders with their cash. However, Cramer likes dividends more because of the downside protection and preferred federal taxation status.
Over the years, buybacks have become very popular. Companies spent about $1 trillion more on buying back stock than on paying dividends in the past decade. Unfortunately, Cramer has seen that these buybacks have not given shareholders the value that they expected.
"So, when you see a company with large buybacks and a puny dividend, you should be suspicious rather than bullish," Cramer said.