(This is Part 2 in a three-part series from Jim Cramer. Read Part 1 here.)
Next up are some very compelling 4%-plus accidental high yielders. I am drawn to Dow (DOW), which I don't believe would be down at 4.2% if it weren't tying up with Dupont (DD). Action Alerts PLUS has been frozen in the name because of repeated mentions, but we are itching to buy more here. It is more than well covered. Here is what the chart of Dow looks like:
Eaton (ETN), chart below, at 4.6% yield seems very cheap, even though it has missed many estimates. It has more than enough coverage and has tons of flexibility for buybacks or dividend boosts. It's off huge from $65 this past summer to $47 now. Doesn't mean it's cheap at 11x earnings, because the earnings are most likely not there. But it sure is reasonable if you think we aren't going into a recession.
I keep hoping that, somehow, Emerson (EMR) will return to greatness and you will look back and think, "What was I thinking that I didn't pick this one up at a 4.4% yield?" But if there were ever an industrial that could slip some more -- perhaps to 5% -- it would be this one because its order rate is abysmal. I remain a believer that Emerson is a great company, but it sure isn't great right now.
IBM (IBM) deserves to sell at a 4% yield. That's what happens when you can't hit the numbers, even as you repeatedly boost the dividend and the buyback. I don't expect that if it misses numbers again a 4% backstop will do much. We will know soon enough as it reports after the close. Here's the chart:
But International Paper (IP) strikes me as a worthwhile 4.8% holding. Here's a low-cost producer of a commodity that can escalate in price if we get any worldwide growth. You could do worse than starting a position right here.
I recently interviewed Diebold (DBD) CEO Andreas Mattes and this company's got an awful lot going for it for a stock with a 4.5% yield. It's got a terrific worldwide automated teller network that many think is technologically superior and it has some security software that's part of an overall growth engine. It's got a place in any higher-yielding portfolio.
Having nixed Caterpillar, perhaps I am too bold in thinking that Cummins (CMI) has the wherewithal to maintain its 4.6% yield, but the company's been very committed to shareholders and has been a regular booster of its payouts. The engine business is in a downturn, the truck business is in a recession and the China business is off a cliff. But these are all cyclical and can change in any economic pickup. If you think that everyone's too gloomy about the industrials, go with this one, not Caterpillar.
Pitney-Bowes (PBI) is making so many right moves to go beyond postal meters, including lots of supply-chain management and document solutions, but nobody seems to care. Sure, its profits are down from the glory days before the Internet, but I still think it's got plenty of coverage for its 4.1% yield. Again, this one could trade down to 5%. No hurry, even as I liked management when I got together with them recently.
I don't know what to make of Qualcomm (QCOM) with its 4.19% yield. QCOM is linked to an industry that we have turned on so dramatically (cellphones) that I don't know if anyone even cares that it yields more than 4%. Because of intellectual property disputes, it's doing worse than Qorvo (QRVO), Skyworks Solutions (SWKS), NXP Semi (NXPI) or Avago (AVGO) and they are all deeply in bear-market territory. Management wants badly to bring out value, but it is tied to an industry that has now been deemed past the peak and well on its way toward decline. Here's what Qualcomm's chart looks like:
Western Digital's (WDC) trying to go beyond just personal computers with its buy of Sandisk for $19 billion, most of it in cash. Too bad. I think it is a massive overpay, making me think that the 4.2% yield isn't something for which it's worth angling.
Same thing with TimkenSteel (TMST) or Nucor (NUE), both of which yield 4.2%. I hate the steel business right now, even as Timken Steel is engineered proprietary steel and service and Nucor uses lower-cost materials to make its steel. Both could go to 5% if the economy looks like it is going to a recession. When we get there, you will be worried about a dividend cut, so I would say no thanks.
