Jim Cramer’s Dividend Stock Picks

In this article we will take a look at Jim Cramer’s dividend stock picks. Ordinary investors usually try to find investment ideas by listening to famous money managers’ suggestions. Many investors watch Mad Money to get some stock tips. Jim Cramer started investing in the stock market during his time at Harvard Law School. Later he worked as a stock broker at the Private Wealth Management division of Goldman Sachs. In 1987, Cramer founded his own hedge fund, Cramer & Co. During his tenure of the fund (from 1988 to 2000), Cramer only had one year of negative returns in 1998. The fund returned 47% in 1999 and 28% in 2000, outperforming the market by 38 percentage points. In 2001, Cramer retired from the fund with an average of 24% annual return over 14 years. Today, as the host of Mad Money, Cramer expresses his opinions on various publicly traded companies on his daily show. Cramer also owns a charitable trust and purchases some of the stocks that he recommends on TV for this trust. In this article, we are going to discuss the high dividend stocks that Cramer purchased for his charitable trust.

Jim Cramer

Energy Transfer Partners LP (ETP) has the highest dividend yield among all the stocks in Cramer’s charitable trust. It has a dividend yield of 7.20%. We like ETP. The company has strong revenue growth as well as good cash flow from operations. It also looks attractive compared with its competitors. ETP’s price-to-distributable cash flow ratio is 14.4, while its main competitor, DCP Midstream Partners LP (DPM), has a P/DCF ratio of 15.9. On the other hand, ETP is still exposed to certain risks. For example, if the weather becomes warmer, there will be lower demand for propane and natural gas. A decline in demand can limit the transportation volumes of the company. Overall we think ETP is a good stock to invest in for the next five years. Thanks to its strong growth rates, its 5-year expected PEG ratio is 1.72, compared with 3.00 for the industry average. But it seems that hedge funds are not so crazy about ETP. There were only 4 hedge funds with ETP positions at the end of the third quarter. The largest ETP holder is Jean-Marie Eveillard, whose First Eagle Investment Management had $4 million invested in this stock at the end of September. Jim Simons’ Renaissance Technologies sold out its ETP shares over the third quarter.

Cramer also likes AT&T Inc (T), which has a dividend yield of 5.95%. We like T. So do hedge fund managers. There were 27 hedge funds with T positions at the end of the third quarter. For example, Cliff Asness’ AQR Capital Management had $108 million invested in T at the end of September. AT&T has power over suppliers and strong financial statements. It has reasonable debt levels, strong revenue growth, and growing profit margins. As a high dividend yielding stock, T has also been increasing its dividend payouts for 28 consecutive years. Recently it increased its quarterly dividend from $0.43 to $0.44 per share, which was paid at the beginning of February. T’s current P/E ratio is not very attractive compared with its competitors. It has a P/E ratio of 45.23, compared with 24.61 for the industry average. But T has a much lower forward P/E ratio of only 11.56, compared with 13.55 for Verizon Inc (VZ), AT&T’s major competitor. We would like to own T for the next 5 years. Its EPS is expected to grow at 3.75%.

A few other dividend stocks that Cramer is bullish about are Kinder Morgan Energy Partners LP (KMP), Sanofi (SNY), and ConocoPhillips (COP). Among these three stocks, SNY and COP are quite popular among hedge funds. Billionaire Warren Buffett is bullish about both stocks. Berkshire Hathaway had $133 million invested in SNY and another $1.8 billion invested in COP at the end of September. Fixed income securities will not be able to protect investors from inflation, as the Fed may be late in response to the economy growth. Dividend stocks are better alternatives. They provide some inflation protection and their dividend payments are much larger. We like dividend stocks and we strongly recommend investors to do some in-depth research on Cramer’s dividend stock picks.