Tuesday, October 21, 2008
(Cont'd from above)...

This brutal market has shaken our faith in the ability of stocks to make us money, right to the core. Right now, with the Dow at 9,033, the index is at the same levels it was in 1998, a decade ago...

In Cramerica, we don't believe you should buy stocks and hold onto them forever. That's insane... even as I hear every single guest say it... Not just on our station (CNBC), but on other stations that talk about it... But it's also what many allegedly intelligent people tell you what to do. They always look so smart. If I didn't have a gray beard, I'd call them "graybeards"... And, if you followed their advice in the last 10 years, it's been a wash, in terms of stock price...

Not too impressive, when you consider that high-quality equities are supposed to be the best-performing asset class over any 20-year period. Oh, we have another 10 years...

This is a market that has been tearing the heads off of bulls. It's not something you should be composed about...

If you think stocks can't make you money, just because of the recent bloodbath that has set us back a decade, in terms of share prices... I'm going to tell you, you're actually wrong.

It's still possible to make money in stocks... It's always been possible. But you have to know what to look for, particularly in this market!... As much as this market has made us lose some of our faith in the ability of stocks to go higher... As much as this market has pummeled us beyond all recognition... it's also given us a new touchstone... it has given us, back to the days when I started at Goldman Sachs 26 years ago... a new faith in dividends.

Last week, we got a disturbing call... quite disturbing. It was from Jim in Nevada... and Jim questioned the power of dividends, as I've been pushing them pretty aggressively lately. And I realized it wasn't Jim's fault. Jim's a smart guy... But I realized that I have not done a good enough job explaining dividends, as well as I should.

In this chaotic market, dividends truly are your best shot at trying to make money, as well as a great bull work when it comes to capital preservation.

So guess what?... Be prepared, because I'm devoting this show to explaining how dividends can make you loads of money and teach you how to trade and invest in stocks, with newly-high yields in this very punishing market. And highlighting a specific high-yielding stock that I think represents a great opportunity right now, at these prices!

First, why dividends?...

I mean, isn't this supposed to be a crazy show where we celebrate speculative stocks and throw things around?... I mean, isn't that what this show's about?... No...

Aren't dividend-paying stocks the last refuge of boring, conservative investors and retirement accounts?... No, an no...

If you know how to use them, dividends are the sexiest thing in this market... even sexier... I will go so far, I will go out on a limb right now... even sexier than some well-preserved 63-year-old (Cramer is really 53) bald guy! Hard to believe...

When you cannot on anything to go higher, you've got to fall back on something more reliable, like the payout you'll get from a stock with a safe dividend.

Even though the Dow was flat over the last decade... even though today was just a miserable day, that made me want to take a shower after it... if you'd invested in a stock in 1998, with a 4% dividend yield and, thanks to the way this market has been brutalized by the bears, there's a whole host of stocks that yield 4% or higher now, including one quarter of the S&P 500... even though, a few months ago, we never would have dreamed that there would be high yielders... if you bought that 4% yielder in 1998, even though the stock was flat, which we said has happened to the average stock... get this... at 4%, you would be up 48% over the last decade. Here's the key point... As long as you reinvested those dividends, and bought more shares along the way, you cleaned up... Reinvesting your dividends is the key to investing in high-yielding stocks.

Now, you probably want me to come out here and recommend Broadcom Corp. (BRCM) or something. Hey listen, this is about making money... this is not "the Jim Cramer punishment show"... No...

Anyway, if you used the payout to buy more shares, you're going to benefit from "the magic of compound interest." Basically, earning interest on the previous interest you've earned. Or, in this case, getting paid a dividend for shares bought with money from a past dividend.

Look at the stock's yield the same way you'd look at the interest rate you get in a savings account, except much bigger. As long as you reinvest those dividends, they're going to compound, and that means serious money over the long term.

Why am I talking about this on a down-200 day?...

Because I know what you're thinking. You're thinking, "I can't win. It's rigged. I can't take it." I am giving you the rigging in your favor. How much money can you make with these?

Alright, well let's look at a stock that I really like... one of the few bullish stocks out there... Duke Energy (DUK). I can't believe I'm talking about DUK. I mean, I can't believe I'm talking about these stocks like that my grandparents owned... Well, they did okay...

DUK, a utility which works in this environment, because utilities are the classic, stable recession stocks. At the current price, DUK yields about 5.86%. That's a lot higher than any savings account you're going to get. The company's been paying quarterly cash dividends for 82 consecutive years. They actually raised the dividend this year.

Companies that can raise their dividends are companies we like, because it makes the power of compounding of that reinvested dividend even greater. If you were to own DUK, and its stock goes nowhere, but you keep reinvesting the dividend using it to buy more shares of DUK every quarter, you would double your money in a little more than 12 years... even though the stock went nowhere. Think of it as a "Duke" with "no hazard"...

If you found a stock with a 4% yield, it would take you 18 years to double your money... okay, so obviously, you like them higher, like 5.86%... if the stock did nothing but you just reinvested your dividends. I think that's pretty impressive for just sitting on your hands.

In fact, if you go back to January of 1926... about 40% of the total return in the S&P 500 has been through reinvested dividends. So, in both good times and bad, like now, reinvestment in dividends should account for almost half of your profits.

I mean, this is what's working, okay... This is what's worked.

Since these are bad times, it will probably be even more than that.

Look, this is not a market where we expect most stocks to go higher and make us money. That doesn't mean we give up... It means we have to get smarter and find the stocks that can make us money, even if they go nowhere.

Listen to me, Jim in Nevada...

Protect our money... because a stock with a big, safe yield is a stock with a cushion that prevents us from falling too far. The worst case scenario... you buy a high-yielder like Duke Energy (DUK), it goes down, you get to buy even more at an even higher dividend.

Here's the bottom line...

The bottom line!:   For Jim in Nevada, and for the 3 million other people who are (new) tuning in on the show... even though I've completely made that up... reinvesting your dividends has always been a great source of profits but, in this market, it's the single-best way to try to make money.  We've got to stick with Cramer, if you're going to learn how to buy these stocks, and to learn about a great, newly-hot, high-yielding stock.

[verbatim recap]

Read Jim's next Segment here