What happened to the power of dividends to protect stocks from falling too precipitously? How can the stock of Macy's (M) yield 9% even as the company is profitable and has an improved balance sheet? How is it possible that BP (BP) can yield 6% even as the company can increase the dividend and has a much better balance sheet than before? Let's throw in Schlumberger (SLB) , the pride of the oil patch, a company I have known for almost 40 years when I thought about getting a job there until I realized that I simply wasn't smart enough to get the job. How can that best in class company yield 6%?
And because as Action Alerts PLUS club members know my self-excoriation knows few bounds, what is the stock of Kohl's (KSS) doing yielding 5.2% even as it has a tie-up with Amazon (AMZN) to return goods and it offers some real bargains on national brands? The answer? None of these companies is perceived to have any growth whatsoever and some, like Schlumberger, are expected to miss numbers. I don't think it is a stretch that Kohl's will either. It did it before Michelle Gass seemed to indicate things were doing well. It could certainly do it again.
Contrast those with companies like American Electric Power (AEP) or Con Ed (ED) . Sure the growth is not rampant, but it isn't episodic, its consistent. Why not buy a Dominion (D) with a 4.5% yield. It's going to grow and grow just fine, now that the SCANA deal's closed. Nothing like a merger among utilities to give you multiyear growth.
But woe be the master limited partnerships in oil and gas. Some of these yield 7, 8, 9, 10, even 11 or 12 percent and it's offered no protection because there is no growth.
My favorite right now is AbbVie (ABBV) which is merging with Allergan (AGN) to form a company that is far less beholden to their master drug, Humira, which has dominated the company's earnings stream for ages and is already losing exclusivity in Europe to biosimilars and only has a couple of years before its patents expire here. The drug, used for Crohn's disease, psoriasis and rheumatoid arthritis, should do $21 billion next year.
But, again, because its growth is supposed to run out then, nobody cared about its 6%-7% yield. Then the company decided to buy Allergan in a cash and stock deal worth $63 billion. As the deal draws closer to conclusion investors are recognizing that AbbVie will now have some growth, whether it be from botox or from its eye care franchise or from its new pill for acute sufferers of migraine. As the spokesman for the American Migraine Foundation I can tell you that this pill will be a blockbuster. Those of us who suffer from terrible migraines know there is nothing that you can just pop into your mouth to quell the pain. I expect to get a vicious migraine tomorrow if it rains as much as the weather people say. The pill is on the verge of being approved and should boost next year's earnings.
In a moment where the market's slaughtering high growth stocks, buying stocks with decent dividends AND growth is a winning formula. I think it's going to stay that way and AbbVie is the best way to capitalize on the moment and on the future.
(BP, Schlumberger, Kohl's, Amazon and AbbVie 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.)
