Cramer's Mad Money - Tale of Two Dividends (6/25/10)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Friday June 25.

Tale of Two Dividends: Annaly Capital Management (NYSE:NLY), Hatteras (NYSE:HTS)

With the future so uncertain, Cramer is still recommending dividend stocks, however, not all dividends are created equal. A high yield could signify "the best of dividends" or "the worst of dividends," depending on how safe the dividend actually is.

Annaly (NLY) Capital Management and Hatteras are similar companies; they both borrow money inexpensively to buy high-yielding mortgage-backed bonds or "agency paper." Annaly's current 5.6% dividend was recently raised by 3 cents and Hatteras has said it will lower its 15% yield by 10 cents. Which company and dividend is better?

Cramer thinks Annaly is the clear winner in this case, because it has been the only real estate trust to deliver a positive return on equity every single year for the last decade. It has been proactive in its portfolio, has better, more secure loans and has a great CEO, Mike Farrell. Hatteras, on the other hand, has lower quality loans, a lot of short term paper, and less flexibility in the rates it can charge.

Cramer discussed other dividend stocks, and is bullish on Telkom Indonesia (NYSE:TLK), which has a 5% yield and returns 50-55% of revenues to shareholders. This company is no longer involved in a price war and has 52% market share in Indonesia, where cell phone penetration could grow from 64% to 80% by next year. National Grid (NYSE:NGG) offers a 7.7% yield and has promised to continue to raise the dividend. Cramer thinks the company's growth is significant enough to trust these statements.

One high yielder Cramer would not recommend is Cheniere Energy Partners (NYSEMKT:CQP) because he doesn't believe in the business. The company yields 10%, but imports natural gas. Since natural gas is so plentiful in the U.S., Cramer doesn't see any need to import it and wouldn't own the stock.

When Will Good News Start to Matter Again? JP Morgan (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), BP (NYSE:BP), Micron (NASDAQ:MU), SanDisk (SNDK), General Mills (NYSE:GIS), ConAgra (NYSE:CAG), Amazon (NASDAQ:AMZN), Barnes and Noble (NYSE:BKS), Monsanto (NYSE:MON), Potash (NYSE:POT), Agrium (NYSE:AGU), Deere (NYSE:DE)

There was a lot of good news on Friday; the euro seems to be coming back, along with oil and gold, and yet the Dow was down 9 points. When will the good news start to matter? Cramer thinks the beginning of earnings season on July 12 will provide new reasons to be bullish. Until then, in the coming week, there will be several earning calls that will give an indication of the health of certain sectors and the heath of the general economy.

On Monday, MIcron (MU), which produces storage disks and DRAM products will talk about the mobile internet and PC market. Its flash chips are used in smartphones, but Cramer prefers SanDisk (SNDK) as a pure play. Barnes and Nobles' (BKS) report will speak volumes about Amazon (AMZN) and the e-reader price war with its Kindle.

On Tuesday, General Mills (GIS), a "tell" for defensive stocks, reports. Cramer noticed that ConAgra (CAG) didn't decline even though its earnings were disappointing, and wondered if this is a sign that investors are running into defensive stocks. General Mills management might confirm this thesis. Cramer says GIS is a buy regardless of its report, since it has a low multiple, a respectable yield of 2.6% and great management.

Monsanto (MON), which has suffered a 42% decline on judicial hearings over its alleged anti-competitive practices, reports on Wednesday. Cramer doesn't want to buy Monsanto, but would pay attention to what the company says because "it is the best tell for the sector we are really warming up to." Cramer wants to know if it might be time to buy Potash (POT), Agrium (AGU) and Deere (DE), the latter of which has just received a boost from China.

In non-earnings news, Cramer would keep an eye on BP (BP), which he thinks might have to file bankruptcy. He would also watch the weather, and thinks a hurricane could completely wipe the company out. He also welcomed a finalized version of financial regulation which is "not as draconian as I suspected." Clarity on the issue is good news for JP Morgan (JPM), Bank of America (BAC), Citigroup (C), Goldman Sachs (GS).

Omnivision Tech (NASDAQ:OVTI), Apple (NASDAQ:AAPL)

One way a regular tech stock can become a spectacular buy is to have a close association with Apple (AAPL). The hottest new features on the iPhone 4 include cameras on the front and the back of the phone and capability for video conferencing with other iPhone users. Cramer called this new video capability "the coolest thing in the world." These new video features are designed by Omnivision Tech (OVTI), which derives 55% of its sales from the mobile handset market. Revenue is up 76%; Cramer says Omnivision has the best year-over-year comparison he's seen so far. The company sold 125 million sensors last quarter and has $6.11 per share in case.

While the stock is up 56% so far this year, Cramer thinks Omnivision's multiple of 15 is too low, given how big the iPhone 4 is expected to be.

Mad Mail: BP Prudhoe Bay (NYSE:BPT), Newalliance Bancshares (NYSE:NAL), Microsoft (NASDAQ:MSFT)

A viewer asked Cramer if BP's disaster will affect BP Prudhoe Bay (BPT). Cramer responded that he didn't think there would be an effect, "but who needs the risk." He said Newalliance Bancshares (NAL) should have a lift as a result of clarity on financial reform even though it is not affected by the changes. Cramer doesn't think XBox will "move the needle" for Microsoft (MSFT), and he still prefers Apple.


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