During Monday night's "Mad Money" program, Jim Cramer wanted to talk about dividends, which can be a lifesaver during market declines like we have seen recently. Dividends are like magic, Cramer said, because investors can reinvest that income and increase their future payouts.
But not all dividends are created equal. Just because a stock has a high yield doesn't mean investors should chase it. In fact, a high yield can be a red flag, Cramer noted. That's because the yield goes higher as the stock price goes lower and investors will start to sell if they fear the dividend will be cut. Anheuser-Busch InBev S.A. (BUD) is a case in point.
BUD built up a mountain of debt as it turned to M&A to fuel growth. As the dollar rose though, it became more expensive to pay it back with its revenue generated from overseas. The company recently cut its dividend in half as a result.
Now that we have the fundamental story let's take a look at the charts.
In this daily bar chart of BUD, below, we can see that prices have nearly been cut in half since last November. The slopes of the 50-day and the 200-day moving average lines have been negative nearly the entire time.
The daily On-Balance-Volume (OBV) line has been in a selloff telling me that sellers of BUD have been more aggressive for months.
In the lower panel is the 12-day price momentum study. Momentum has been making lower lows as prices have made lower lows and thus there is no divergence or slowing of the downtrend.
In this weekly bar chart of BUD, below, we can see that prices have been in a bear trend from 2016.
The 40-week moving average line is bearish.
The weekly OBV line is bearish and there is no bullish divergence yet from the 12-week momentum study.
In this Point and Figure chart of BUD, below, we can see a price target of $69.
Bottom line strategy: BUD has been in a downtrend for an extended period of time but signs of a bottom or reverse are not yet visible. BUD could decline to the $60 area in the months ahead.