Jim Cramer is known for his top-performing returns when running a hedge fund and for his stock picks on the Mad Money television show. Recently, Cramer has been telling investors to focus on dividend-paying stocks, because they offer solid yields and generally remain far more stable than stocks that don't offer dividends.
The near zero interest rate policy from the Federal Reserve is making it nearly impossible for investors to find any reasonable returns in traditional savings accounts, certificates of deposits and money market accounts. With rates likely to stay low for many years due to a weak economy, it makes sense to invest in stable companies that have solid balance sheets and higher than average dividends.
This approach is likely to give investors stability, better yields, and a chance at capital appreciation over time. That being said, there are still many challenges facing Europe, and the markets will probably remain very volatile. Because of this, it makes sense to remain cautious, and I would only consider buying stocks when they are declining due to a bad day in the markets.
The average dividend yield for all the stocks in the S&P 500 index is currently 2.09%, so it's easy to understand why Cramer considers the stocks below to be high-yielding. The stocks below were selected because they yield about twice as much or more than the average S&P stock and also because they are in stable industries that can withstand an economic downturn.
Demand for power from utilities, telecommunications, tobacco, beverages and drugs will remain relatively strong in recessions. See the full list of Cramer's favorite high-yield stocks here. Here is a closer look at some of the current favorites:
Energy Transfer Partners (ETP) provides natural gas pipeline and transportation services, and sells propane in the United States. This stock offers a strong dividend payout and yields over 8%. These shares look attractive for both the dividend and potential price appreciation, especially if they trade down to about $39, which is a level the stock hit in October. This company recently did a secondary offering and since that increases the supply of stock, we could see better buying opportunities soon. The company sold 13,250,000 common shares at $44.67 each. Cramer thinks the lower stock price is a buying opportunity.
Here are some key points for ETP:
- Current share price: $43.31
- The 52-week range is $38.08 to $55.50
- Earnings estimates for 2011: $1.92 per share
- Earnings estimates for 2012: $2.50 per share
- Annual dividend: $3.58 per share, which yields 8.1%
Solar Capital Ltd. (SLRC) is a business development company that makes investments in a wide variety of industries, including beverage, tobacco, broadcasting, chemicals, and many more. For the most part, these industries remain stable even in recessions. The book value is $21.20 per share, and the stock recently dipped to about $19.50 per share. I would wait for pullbacks below $20 before considering a buy here. Buying that kind of dip increases your chance of having both a very high dividend as well as some potential capital gains, if it rebounds later. This stock doesn't trade as much volume as others here, so if a big seller comes into the picture or the markets see a big decline, chances are you can buy under $20 again.
Here are some key points for SLRC:
- Current share price: $21.99
- The 52-week range is $18.90 to $25.93
- Earnings estimates for 2011: $2.26 per share
- Earnings estimates for 2012: $2.47 per share
- Annual dividend: $2.40 per share, which yields 10.4%
Sanofi-Aventis (SNY) is a French pharmaceutical giant that now trades for about 7 times earnings and offer a dividend yield of about 4%. Earlier this year, these shares traded regularly for $37 to $40, so there is future upside potential while you collect the dividends. As emerging market consumers increase their earnings power, this will result in more demand for pharmaceutical products that enhance and extend the quality of life. However, this stock is based in Europe, so it could be volatile for awhile.
It recently hit lows of about $31, so the closer you can get to buying at that level, the higher your yield and potential upside will be. I think it will be possible to buy for $32 or less with some patience. Because this company is based in Europe, the dividend yield will vary depending on the exchange rate between the euro and the U.S. dollar. Yahoo Finance reports a 4% dividend yield; however, in the Cramer article link above, the yield is stated to be 5.4%.
Here are some key points for SNY:
- Current share price: $32.21
- The 52-week range is $30.05 to $40.74
- Earnings estimates for 2011: $4.63 per share
- Earnings estimates for 2012: $4.09 per share
- Annual dividend: about $1.32 per share, which yields 4% to 5.4% depending on exchange rates.
American Electric Power (AEP) is a major utility company and generates electricity derived from coal, natural gas, nuclear, and hydroelectric energy. American Electric has operations primarily in Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia, and West Virginia. This stock dropped to about $34 recently, but has rebounded sharply. This is probably one of the most stable ways to earn a solid dividend yield since power is a basic need even in a bad economy. If you can buy around $36 or less, you will get a better yield and might even get capital appreciation.
Here are some key points for AEP:
- Current share price: $37.10
- The 52-week range is $33.09 to $40.08
- Earnings estimates for 2011: $3.13 per share
- Earnings estimates for 2012: $3.21 per share
- Annual dividend: $1.88 per share, which yields 4.8%
Verizon (VZ) is a leading communications company and provides voice, Internet access, broadband data, long distance, etc. A recent article in Barrons.com states that a couple of analysts believe the upside is limited. In fact, Deutsche Bank has a $37 price target and Credit Suisse has a $33 price target which means the stock appears overvalued now (see those price targets and other concerns here. I agree the valuation is stretched and this stock is selling at about 16 times earnings, which is above the current market average around 12. In August, this stock dipped to about $33, and patient investors might see another chance to buy much lower and therefore pick up a better yield.
Here are some key points for VZ:
- Current share price: $35.35
- The 52-week range is $31.60 to $38.95
- Earnings estimates for 2011: $2.20 per share
- Earnings estimates for 2012: $2.55 per share
- Annual dividend: $2 per share, which yields 5.4%
Windstream Corporation (WIN) provides communications services (primarily to rural areas), such as local and long distance, Internet access, data services, and video services. This is also one of the top yielding stocks in the market, and it has recently dipped. The concern here is that the earnings estimates are below the dividend payout. That along with the high yield, could be a warning sign that the company might need to cut the dividend. Because of these concerns, I would wait for drops to the low $11 range, which this stock has recently hit a couple of times.
Here are some key points for WIN:
- Current share price: $11.08
- The 52-week range is $10.76 to $14.40.
- Earnings estimates for 2011: 76 cents per share
- Earnings estimates for 2012: 82 cents per share
- Annual dividend: $1 per share, which yields 8.7%
Data is sourced from Yahoo Finance.
Disclaimer: No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.