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Stay Diversified, Buy Dividends

Don’t waste time trading the new Obama presidency, Cramer told the studio audience during Wednesday’s State of Cramerica show. In a market this tough, investors want a diversified portfolio full of dividend-paying stocks.

Regular Mad Money viewers already know which recession-resistant names to buy. They’re Cramer’s five favorite Dow stocks for 2009: Johnson & Johnson , Caterpillar , Hewlett-Packard , Verizon Communications and Home Depot .

The Dow All-Star portfolio is down 3% since Cramer starting recommending these stocks, during the week of Jan. 5. But the Dow’s dropped 8% over the same period, while the S&P 500 has slipped 9%. That’s relative outperformance by the all-stars. And if they held up well during this downturn, there’s a good chance they’ll rebound first when the market turns up.

Consider the dividends, too, which are a big reason Cramer picked these stocks in the first place. Other than Hewlett-Packard, all of these companies pay more than 3%, Verizon as much as 6%. Once you factor in the quarterly dividends, the All-Star portfolio is down only 2.1%. With the returns from the annual dividends, the portfolio’s actually up a half percent.

Dividends account for about 50% of a stock’s appreciation. They offer much-needed protection during volatile markets, and they boost your return. Plus, other investors are attracted to the increasing yields as the share price drops, further buoying the stock. This is at least partly why the All-Stars have the Dow and S&P.

Now J&J, CAT, Hewlett-Packard, Verizon and Home Depot are even cheaper than when Cramer recommended them, and their yields are higher. And the fundamental case for buying them is just as strong. So he’s reiterating his call on these stocks. They should help investors no matter who’s in the White House.






Cramer's charitable trust owns Johnson & Johnson and Hewlett-Packard.

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