Former hedge fund manager Jim Cramer believes that “there is always a bull market somewhere.” Cramer, who is the host of CNBC’s “Mad Money,” helps investors to find this “bull market”. Thousands of do-it-yourself investors get investment ideas by watching Cramer’s TV show, where he shares his opinions on stocks and discusses the news of the day and its affect on the markets. Investors can also gain some insight from Cramer by taking a look at his charitable trust.
In this article, we are going to discuss the top dividend stock picks in Cramer’s trust. We believe dividend stocks are much better investments for investors than long-term treasury bonds right now. The 10-year Treasury bond only yields 2% per year while the annual inflation rate is about 2-3%. This means that your real return will be below zero if you invest all your money in treasury bonds. We think that dividend stocks are a better choice.
Energy Transfer Partners LP (ETP) is the highest dividend yielding stock in Cramer’s charitable trust. The stock has a dividend yield of 7.82%. As of April 11, 2012, We discussed Energy Transfer Partners in our previous article about Cramer’s dividend stocks. We like this stock then for its relatively low P/CF ratio and decent growth rate, and we still do.
Over the past few years, Energy Transfer Partners has been growing rapidly through both internal pipeline development and external acquisitions. Today, it owns the largest intrastate pipeline system in the United States. We think the stock is an appealing investment for the long term as it has a high yield and strong growth potential. Analysts expect the company’s earnings to grow at about 14.5% per year over the next couple of years. Money Manager Jean-Marie Eveillard is also bullish about Energy Transfer Partners. His First Eagle Investment Management had about $5 million invested in this position at the end of the fourth quarter 2011.
Sanofi (SNY) has the second highest dividend yield amongst the stocks in Cramer’s trust, with its dividend yield of 4.85%. We like Sanofi. It has stable earnings growth and a relatively low payout ratio, which indicates that the company’s high dividend yield is sustainable. It also has attractive valuation levels. The company is expected to make $3.91 per share this year and $4.07 per share next year, making its forward P/E ratio roughly 9.3, which is a significant discount to the industry average of 17.3. We discussed Sanofi in detail in a previous article. Overall, we think the stock is a good dividend play for long-term investors.
General Electric Company (GE) also offers an attractive dividend yield. Its current dividend yield is about 3.63%. The company cut its dividend payouts in 2009 but it has been increasing its dividend over the recent two years. We expect General Electric will continue to raise its dividend in the future as it has relatively low payout ratio, low multiples, and robust earnings growth.
The company’s current P/E ratio is around 15 and it pays out 50% of its earnings as dividends. Analysts expect its earnings to grow at about 12% annually over the next couple of years. The strong growth should enable the company to further increase its dividends. Moreover, even if General Electric fails to meet the growth expectation, it should still be able to maintain its dividends as its payout ratio is only 50%. General Electric is quite popular amongst the hedge funds we track. As of December 31, 2011, there were 40 hedge funds reporting to own General Electric in their 13F portfolios, including Bill Miller’s Legg Mason Capital Management and Warren Buffett’s Berkshire Hathaway.
A few other dividend stocks in Cramer’s trust are ConocoPhillips (COP), Freeport-McMoRan Copper & Gold Inc (FCX), and Abbott Laboratories (ABT). Their dividend yields are around 3.5%. We like these stocks as well. So do many hedge funds. Freeport-McMoRan is the most popular copper stock among hedge funds. There were 41 hedge funds with this stock in their portfolios at the end of last year, including Cliff Asness’ AQR Capital Management, Jeffrey Vinik’s Vinik Asset Management, Israel Englander’s Millennium Management, George Soros’ Soros Fund Management, and Jim Simons’ Renaissance Technologies. ConocoPhillips is also one of the most popular energy stocks among hedge funds (check out our article about ConocoPhillips) and Abbott is one of the most popular drug stocks.
You may have noticed that there aren’t any traditional dividend stocks, like utilities and tobacco stocks, in this list. These stocks outperformed the market last year as the interest rates plummeted. We think healthcare, energy, and industrial stocks with high dividend yields are safer bets at this time.