Jim Cramer Isn't Really Bullish About These 5 Dividend Stocks

Includes: COP, GE, IP, LLY, MMM, MSFT
by: Insider Monkey

Jim Cramer recommends hundreds of stocks, but he is really bullish about just a few of them. Cramer recommended five dividend stocks last week, saying that these stocks are paying you to wait. He isn't really bullish about any of the dividend stocks we listed below as he doesn't have them in his charitable trust's portfolio. Below we review the five stocks and we are bullish about only one of them. There are better alternatives to the other four dividend stocks Cramer recommended.

General Electric (NYSE:GE): Industrial conglomerate yields 4.04% after boosting its quarterly dividend to $0.17 last week. GE has a PE ratio of 12.5. If the economy doesn’t decline sharply, General Electric may be able to boost its dividend yield. Even though we are concerned a little about General Electric’s finance unit, we prefer General Electric over Honeywell (NYSE:HON) because of its low valuation. Honeywell’s PE is more than 20% higher than General Electric’s. However, there are better alternatives to both stocks.

3M (NYSE:MMM): Jim Cramer likes 3M because of its 2.73% dividend yield. Also, 3M has consistently boosted its dividends for the past 54 years. The stock is definitely a better alternative to 10-year Treasuries. We recently analyzed 3M, General Electric, and Tyco (TYC). All these three stocks seem to be fairly priced relative to each other. What we liked about 3M and General Electric was that they seem to be better alternatives to high dividend utilities such as American Electric (NYSE:AEP), Dominion Resources (NYSE:D), and Duke Energy (NYSE:DUK). High dividend utilities are currently perceived as the best alternative to low yielding treasuries. As a result, investors have been snapping up these stocks this year which pushed their valuations up. For the short term we think high dividend utilities are indeed great investments, but if your investment horizon is longer than 5 years, we think stocks like General Electric and 3M are better because they will be boosting their dividends significantly.

Eli Lilly (NYSE:LLY): Eli Lilly recently gained some ground because of positive news about its Alzheimers drug. If the drug is successful, it will reverse Eli Lilly’s declining fortune. Out of the stocks we discussed so far, Eli Lilly is one of the highest yielding ones with a 5% dividend yield. We recently compared Eli Lilly with Pfizer (NYSE:PFE) and concluded that despite its high dividend yield, Eli Lilly isn’t the better investment. The main problem with Eli Lilly is that its expected EPS growth rate is negative. Expiring patents and generic erosion is a problem for most large cap pharma companies. Nevertheless, Pfizer is expected to grow its EPS by 5% annually over the next five years. Pfizer also yields 4%, which is good enough for most dividend investors.

ConocoPhillips (NYSE:COP): ConocoPhillips is a stable company with a 3.72% yield. The yield was above 4% a couple of months ago when the stock price was lower. We like ConocoPhillips. We think energy stocks are still in a long-term bull market because of increasing demand in emerging markets. Oil supply can’t keep up with the increasing demand. We think companies like Chevron (NYSE:CVX), ConocoPhillips, and Halliburton (NYSE:HAL) will benefit from increasing oil prices. The best thing about these stocks is that they are very attractively priced. We have ConocoPhillips in our portfolio because of its high dividend yield. Chevron also yields more than 3%. Halliburton’s yield is only 1% but the stock is expected to grow its earnings by around 20% over the next five years and its current PE ratio is only 12.

International Paper (NYSE:IP): The last dividend stock Cramer recommended was International Paper. The stock yields 3.9% and is in the process of acquiring Temple Inland (NYSE:TIN). The paper business isn’t growing much but International Paper should be able to reduce its costs to make up for that in the short run. We like the stock as an alternative to 10-year Treasuries but we prefer faster growing dividend stocks with huge net cash positions. For instance, Microsoft (NASDAQ:MSFT) and International Paper have the same forward PE ratio of 9.3. However Microsoft is expected to grow its EPS by 6 percentage points more than International Paper is expected to grow its EPS. This means Microsoft will get 6% extra earnings every year and this will give it the opportunity to increase its dividends. Microsoft also has more than $40 billion in net cash position which will probably force it to increase its dividends sometime in the future. Microsoft currently yields 3.16%, which isn’t too bad. We think Microsoft is a better long-term investment than International Paper. Hedge funds agree with us too. Microsoft is the third most popular stock among hedge funds (see the top 10 most popular stocks).

Disclosure: I am long COP, MSFT.