If there’s one thing that the recent Europe-inspired downturn taught us, it’s this: Companies with newly raised dividends are some of the best stocks to own when the market heads south.
Take the five names Cramer recommended back in February for this very reason: Hasbro , Core labs , Ross Stores , Rollins and Wynn . He thinks a dividend raise is a true sign of a company’s health, and that soon translates into a higher stock price. Well, that has proved true. Throughout the downturn, these stocks trumped the S&P 500’s gains by 13%, returning an average of 17% versus the index’s mere 4%.
So, even though we enjoyed last week what Cramer referred to as a “mega rally,” the focus should still be on owning these kinds of defensive stocks for protection. Investors must be prepared for the next leg lower.
“We know it worked last time,” Cramer said, “and patterns tend to repeat themselves.”
Seven companies upped their payouts to shareholders last week, and of those seven Cramer likes four: FedEx , Caterpillar , Del Monte Foods and Target .
Even among this group, though, Cramer thinks there are two standouts. Yes, FedEx’s 9% dividend raise could be a “very good omen” of the company’s coming earnings report on Wednesday (even though the yield is up to only 0.6%). And yes, Caterpillar’s boost is incredibly positive, especially considering a year ago people were expecting a cut. But Del Monte and Target increased their payouts a gigantic 80% and 47%, respectively.
Cramer reiterated his buy call on DLM just last week after an interview with the CEO, especially for its exposure to the pet market. The pets business is in a mini-bull market of its own these days, and Del Monte gets 46% of sales come from pet food. Think Milk Bones, Pup-Peroni, Kibbles n’ Bits, Snausages and Meow Mix. Cramer said this stock works as a great defensive play because, downturn or not, pet owners always prioritize their animals. He also thinks DLM could climb another 15% “without much more good news.”
Target, meanwhile, now pays out at 1.9% yield — “nothing to sneeze at,” Cramer said. And like most dividend hikes, he sees it as a sign that this business is getting better. He especially likes Target’s scaled-back expansion plans, focusing instead on existing stores, and its credit-card business. That lends visibility to the company’s earnings, something that makes the stock more appealing to money mangers because there’s less uncertainty.
The markets and economy are no doubt getting better, but investors still have to immunize their portfolios against the next big downturn with these dividend raisers.
Because “as certain as we are about the prospects of these companies,” Cramer said, “we are even more certain that it [is] just a matter of time before we get hit again.”
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