Jim Cramer: 10 Big Dividend Stocks I Like Now

We keep hearing that the likelihood of the Federal Reserve raising rates any time soon is pretty much nil and that solid-yielding opportunities in 2021 will remain hard to come by. I can see why the Fed will remain easy. We do not have much of a recovery going on except in housing. That shows the Fed’s plan is working because while housing is only 10% of the U.S. economy we like to say that it punches above its weight given all of its pin action to the rest of the economy.

Still, I think readers and viewers deserve much better than to say that there’s no opportunity for income in this market. When you consider how low so many fixed income rates are, it’s almost impossible to put together a portfolio that can withstand any sort of economic comeback without taking on losses.

That’s not the same with equities, though. Stocks can fulfill the function that bonds can’t and give you some decent upside, especially given the decline in so many higher yielding pieces of paper, led by the walloping in the utilities.

That’s why I have decided to put together a diversified portfolio of companies that can be used to get income with some capital appreciation. I want people to know that you can still get income with a degree of safety despite the Federal Reserve’s stated desire to keep rates low and the possibility that the economy will take still one more turn for the worse.

Before giving you my stocks though I want to talk about the concept of income because I think that too many make wrong assumptions about how dividends work. We get a ton of questions in the “Lightning Round” about Mad Money and I need to do some explaining before giving you the stocks I like.

Way too many people take too much risk when it comes to dividends. They look at a big yield and they actually gravitate to it, I get that. When you see a yield that, say, is north of 8%, which is gigantically higher than almost all bond and stocks offer, that’s not positive. It’s negative. It’s a red flag, a sign that the distribution is not safe. It might be prone to being cut as so many were last year. Other stocks have a yield that may stay large but not cover the losses that the stock will give you. We’ve seen a lot of that in financial real estate investment trusts. The whole REIT class has been tarnished by giant slashes in distributions. Same with the oil and so has master limited partnerships. I have inveighed against these for ages and yet people don’t stop buying them in the same way that people kept buying oil and gas stocks betting that the dividend just had to be safe.

So, if there is one major takeaway I have about dividends, one rule you must know: never reach for yield. It’s just not worth it.

What stocks do I like right now with big dividends?

Let’s start with Dow Chemical (DOW) . Dow has been a terrific stock ever since Jim Fitterling came on Mad Money and said he had just plunked down about a half a million dollars in stock in the open market, one of many large buys made by executives and board members. The stock’s more than doubled since then but it still yields 5%. I like it because numbers are going higher, not lower, led by the price of polyethylene. Frank Mitsch, principal at Fermium, my favorite chemical guru, just raised numbers on strong plastic demand. You are not reaching when numbers are being raised, only when they are being cut.

Back in October when IBM (IBM) announced the spin of its $19 billion Managed Infrastructure Services on Mad Money, the company was quick to point out that the combined dividend level of the two companies would be no less than the pre-spin, which is terrific given that you will be getting a 5% return. I think IBM’s making a lot of right moves by offloading slower properties and focusing on fast growing opportunities like those that Arvind Krishna recognizes are too big not to play in, especially the cloud and digitization. The Red Hat acquisition, which brought in old friend of the show Jim Whitehurst, represents the future. You are being paid to wait for the process to play out. Oh, and maybe Gary Cohn, late of Goldman Sachs (GS) and now vice chairman of IBM, can help bring out value by driving cultural change.

Lots of times when you search for good yielding growth stocks you discover some chink in the armor that can’t be patched over. That’s how many feel about AbbVie (ABBV) , the drug company that has its gigantic Humira franchise lose its exclusivity in the U.S. beginning two years from now. For growth investors that’s way too soon. They aren’t considering, however, the strength of the pipeline, the rapidly growing sales of two blockbusters that I think can replace a lot of the lost Humira revenue or the extensions of Botox that can be wrung that Allergan, an AbbVie purchase, couldn’t deliver on. The bridge from 2023 to 2025 may be too far for some who are worried about the payout. I am not one of them.

When you think of chinks in good dividend payers, you might be thinking about B&G Foods (BGS) , the steady-eddie purveyor of pantry brands that yields almost 7%. About a month ago B&G completed the purchase of Crisco from J.M. Smucker (SJM) for $500 million in cash. I love this kind of acquisition because it raises the growth rate for Smucker and buoys the cash flow for B&G, making its dividend more secure. The fly? Ken Romanzi, or more accurately, the sudden departure of CEO Ken Romanzi, in mid-November with no real explanation given. Why am I willing to tread here when others aren’t? Because David Wenner, a board member, has been named interim CEO and David used to make regular appearances on Mad Money and he’s stand up. Yes, I want to know more about the change, but let’s face it, the brands, including Green Giant, Cream of Wheat, Melba Toast, and B&G pickles are perfect for the new stay-at-home cooks.

Many times I have told you that I think the oils are uninvestible but if you need to own one you can buy Chevron (CVX) because it has done so much to improve its balance sheet and not take curious risks like so many others in the patch. A lot of that is Mike Wirth’s stewardship. Am I crazy about owning an oil? Not in an era where fossil fuels are public enemy number one. That said, under Trump’s drill anywhere philosophy oil stocks got crushed. Under Biden, paradoxically, oils should do better because those with ready-made growth prospects like Chevron will shine as drilling on new lands becomes harder. That’s the same reason why I am now willing to recommend one that I have stayed away from for ages, Kinder Morgan (KMI) , a pipeline corporation – not an MLP – that yields 7.74% and just gave you a 3% increase in the dividend. There’s a surfeit of pipelines but Biden will take care of that, for certain.

Finally, I always come back to Verizon (VZ) , slow and steady which gives you a 4.26% that won’t keep you up at night. I think ATT’s (T) 7% yield, however, will make you wish for some strong CBD drops.

Now, I didn’t bother to mention all of the good utility stocks that have just been crushed in part because they all still yield too little versus what I have mentioned. American Electric (AEP) , Dominion (D) , and Entergy (ETR) are all favorites with good growth and strong managements. They can round out a dividend portfolio.

Still, with my diversified names you can get a yield north of 5% where you can feel confident enough to reinvest those dollars or use them to fund your lifestyle and augment or replace your income.

(GS and ABBV are holdings in Jim Cramer’s Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)