Nucor Dividend is Solid - Cramer's Mad Money (10/21/08)

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Tuesday, October 21.

Buy the Dividend - Duke Energy (DUK), Nucor (NUE)

"The market is still a fragile and untrustworthy place," Jim Cramer told viewers on Tuesday. Cramer said that there's just nothing bankable in this market, especially if investors are in the wrong stocks. That's why he continues to stress the importance of dividends. Cramer said it's still possible to make money in the markets, but only if you know what to look for. And, he emphasized, that would be high-yielding dividend stocks. While dividends might not be sexy, he said, they represent serious money over the long term. Cramer noted that the Dow Jones Industrial Average is now exactly where it was 10 years ago, causing some to lose faith in the markets. But Cramer reminded those viewers that if they had invested in a stock with a 4% dividend yield 10 years ago and reinvested those dividends, their investment would be up 48%, even if the shares never appreciated.
He noted 40% of total return delivered by the S&P500 is in the form of dividends. He laid out a few requirements everyone should keep in mind:

• A high yield is great, but make sure the company has the cash to maintain its dividend.

• Look for companies that have a record of increasing their dividend.

• And if possible, look for companies that have a history of special dividends, which are rare payouts to shareholders when management decides it has the money to do so.

To underscore the power of dividends, Cramer cited Duke Energy as a stable, recession-proof company with an 82-year history of paying dividends. The company carries a 5.8% dividend today. Had investors put their money Duke and reinvested the dividends, they would have doubled their money every 12 years, he said. "Don't give up on stocks," said Cramer, "protect your money with stocks that have big yields." Continuing on his theme of only investing in stocks with great dividend yields, Cramer recommended steel-maker Nucor, a cyclical company that currently yields 5.7%. Cramer said it's not enough for a company just to have a dividend. It also needs to have a long history of paying dividends, even in bad times, or even better, a long history of paying special dividends.
Cramer called Nucor the most shareholder friendly industrial company he follows. He called the company's solid dividend a safety net that protects its share price from perpetual freefall. Cramer said he also likes the company's long history of paying special dividends, on top of its regular dividends. So far in 2008, Nucor has paid 80 cents a share in special dividends. The company paid $1.81 in special dividends in 2007, $1.75 in 2006 and 62 cents in 2005. Cramer again recommended buying dividend stocks on a scale based on yield. For a 200-share position in Nucor, for example, he said one should buy 50 shares at current levels, where the stock yields 5.7%, then another 50 when the stock yields 6.5%, and so on.

The State of Steel – Nucor (NUE)

After recommending Nucor based largely on its dividend, Cramer talked with the company's chairman, president and CEO Dan Dimicco to see if it can deliver equity appreciation, as well. Dimicco said not every industrial company is capable of covering its dividend, but Nucor is in a great cash flow position to do so. He said he still believes the economic downturn will be mild for the steel industry, but admits that no one saw a financial crisis of this magnitude coming. Dimicco said Nucor's business model differs from that of traditional steel makers. “The best in breed will do better than the average by far,” DiMicco said, “and Nucor is one of those best in breed.” Since the company mainly deals in scrap steel, its input costs mirrors that of overall steel demand. Thus, Nucor still makes money regardless of the rise and fall of input costs. Cramer said there are only a handful of industrials he'd recommend right now, and Nucor is one of them.

Mad Mail - Linn Energy (LINE)

Cramer told a viewer that he's standing behind his recommendation of Linn Energy, this despite the company's negative earnings per share.

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