Jim Cramer is the widely-followed host of CNBC's "Mad Money" show. He racked up an impressive record while running a hedge fund for many years. His extensive experience with the stock market and impressive returns have led him to become a trusted source of advice for many American investors. Lately, he has been suggesting that investors should remain focused on dividend stocks.
Many investors are hungry for income in a low interest rate world. Investors are also looking for relative safety and dividend stocks tend to be more stable than stocks that pay no dividend. This is another reason why dividend stock investing makes sense in these volatile markets. The average yield for a stock in the S&P 500 Index is just over 2%, but Cramer has identified and recently put a buy rating on two extremely high-yielding stocks. Here is a closer look at them:
Energy Transfer Partners L.P. (ETP) shares surged to about $50 in early May, but the stock has trended down with the markets and the price of oil and gas. This company owns and operates an extensive natural gas pipeline and provides transportation services. It has about 23,500 miles of pipelines that operate in Alabama, Arizona, Arkansas, Colorado, Florida, Louisiana, Mississippi, New Mexico, Utah and West Virginia and Texas. It recently made a deal to buy Sunoco Inc. (SUN), which will greatly expand the existing operations.
Even though falling energy prices have caused most stocks in the sector to drop, this company is not directly impacted since its profit margins are not based on the price of either oil or gas. The pipelines it operates is like a toll gate on a bridge, so as long as natural gas is passing through it, Energy Transfer will collect the fees. This business model creates steady cash flow and since almost every business and consumer relies on natural gas as a basic need, this company should remain relatively insulated from an economic downturn. With the stock about 10% off the recent highs, and with a yield of 8%, buying this stock looks very rewarding for investors seeking income. Cramer likes the stock and recently interviewed the CEO.
Key Data Points For Energy Transfer Partners From Yahoo Finance:
- Current Share Price: $44.33
- 52-Week Range: $38.08 to $51
- Dividend: $3.58 which provides a yield of 8.1%
- 2012 Earnings Estimate: $1.49 per share
- 2013 Earnings Estimate: $2.24 per share
- P/E Ratio: about 30 times earnings
Annaly Capital Management, Inc. (NLY) has been outperforming the market and it is now trading near the 52-week high. This company is regarded by Cramer to be one of the best managed real estate investment trusts focusing on mortgage securities. This industry can be volatile because a number companies in the sector have needed to reduce the dividend, and secondary stock offerings are not uncommon. Annaly was paying a 68 cent per share dividend in 2010, and then lowered it twice in 2011, to 57 cents per share, and it now pays 55 cents. Because of this, another dividend reduction is not out of the question. One strategy is to buy when the stock drops after a dividend cut, or after the company announces a secondary offering of shares. Even though these events pose short-term risks to the stock price, investors who hold for at least a couple of years can absorb this and still come out ahead due to the extraordinary yield of about 13%.
Key Data Points For Annaly From Yahoo Finance:
- Current Price: $17.11
- 52-Week Range: $14.05 to $18.74
- Dividend: $2.20 annually which yields 12.8%
- 2012 Earnings Estimate: $1.98 per share
- 2013 Earnings Estimate: $2.05 per share
- P/E Ratio: about 8 times earnings
Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.