Jim Cramer is one of the top watched TV personalities on CNBC. He is the host of "Mad Money" and also the co-founder and chairman of TheStreet.com. Nearly 250,000 people watch his show daily on TV and most of these are ordinary investors trying to understand what’s going on in the market. Jim Cramer’s bullish and bearish stock picks on his show are the starting point for many investments made by these folks.
Jim Cramer generally recommends growth stocks such as Apple (AAPL), Netflix (NFLX), or Chipotle (CMG). He says these growth stocks will come out ahead over the long-run. However he also pursues defensive investing to balance out the high growth stocks in his portfolio. After last week’s decline, Cramer said the following about his favorite defensive plays:
So what do we do? We find tanks that can withstand the machine guns. What's a tank? A company that pays a bountiful dividend with more than a 3.5% yield which is so much better than what you can make with cash or bonds. And I think much safer. Con Ed (ED), up almost two bucks yesterday, is a tank because it yields more than 4%. Procter & Gamble (PG), which reported an OK number and then gave subpar guidance, is a tank. It rallied yesterday from that 3.5% level. Kimberly Clarke (KMB) and Altria (MO) and Kinder Morgan(KMI) are tanks. When the machine guns shoot, you can hear them bounce off your machine.
The S&P 500 Index was down 6.66% yesterday. We wonder how Jim Cramer’s favorite defensive stock picks fared.
- Con Ed: ED lost 5.37% yesterday. The stock closed at $50.41 and now yields 4.76%. Con Ed gained 4.1% so far in 2011 and outperformed the SPY’s 9.9% decline by 14 percentage points.
- Procter & Gamble: PG lost 2.15% yesterday. The stock closed at $59.29 and now yields 3.54%. Procter & Gamble lost 5.6% so far in 2011 and outperformed the SPY by 4.3 percentage points.
- Kimberly Clark: KMB declined 1.89% yesterday. The stock closed at $62.86 and now yields 4.45%. Kimberly Clark lost 1.9% so far in 2011 and outperformed the SPY by 8 percentage points.
- Altria: Altria lost 5.21% yesterday. The stock closed at $24.54 and now yields 6.19%. We expect Altria to increase its dividend payments from the current quarterly payment of $0.38. The stock had raised its dividends for 42 years in a row, so this shouldn’t be a surprise. Altria gained 2.6% so far in 2011 and outperformed the SPY by 12.5 percentage points.
- Kinder Morgan: KMI lost 8.72% yesterday. The stock closed at $23.66 and now yields 5.07% based on a quarterly payment of $0.30. The stock lost 14.5% since its debut on May 4th, vs. SPY’s 16.3% loss.
Overall an equal-weighted portfolio of these 5 stocks would have lost 4.67% yesterday. This is 2 percentage points less than the market’s decline. The four stocks that trade since the beginning of this year outperformed the SPY by 9.7 percentage points. These stocks seem to provide significant downside protection and they were up by 4.5% before yesterday's huge decline. Procter & Gamble is the most popular of these 4 stocks among the 300+ funds we are tracking. Warren Buffett had more than $4.7 Billion in PG (See Buffett’s other top holdings). Ken Fisher, D.E. Shaw, and Bill Miller are among the other hedge funds with large PG positions.
Altria is also quite popular among smart money. Tom Russo, Cliff Asness, David Dreman, and D.E. Shaw are among MO investors (See D.E. Shaw’s favorite stock picks). We have been urging investors to consider high dividend stocks since the beginning of this year. We believe these stocks are now much better investments than 10-year treasury bonds that yield 2.32%. A well-diversified portfolio of high dividend stocks with a long history of dividend increases should easily perform better than the 10-year bonds over the next 10 years. We like Jim Cramer’s high dividend stock picks and believe investors should diversify even further to minimize the risk.