In times of stock market volatility, investors tend to flock to “safe” stocks in which offer steady growth along with also high dividends. although high-yielding securities can come with unexpected risks, CNBC’s Jim Cramer warned Monday as stocks traded lower.
“The risks are enormous if you don’t know the pitfalls,” he told investors. “As much as we love dividends, they’re only worth chasing after if your payout is usually safe. So if you want some income through your stocks, you need to watch out for red flags.”
The first red flag is usually when a company incorporates a very high dividend yield, Cramer said. in which tends to mean in which investors, worried about potential dividend cuts, have been selling the stock along with also pushing the dividend yield percentage higher.
although the more insidious warning sign is usually when a company offers an attractive dividend, although can’t pay in which consistently because in which has loads of debt along with also poor fundamentals, the “Mad Money” host said.
in which was what “doomed the payouts” at beer supplier received a Anheuser-Busch InBev along with also ailing industrial General Electric, Cramer said, pointing to the stocks’ recent weakness to cement his point.
Budweiser parent Anheuser-Busch, for example, has accumulated a $109-billion “mountain of debt” through a series of large-scale acquisitions. inside company’s latest earnings report, which was weaker than expected, management said in which was going to “rebase” the dividend, cutting the 5.2 percent yield down to 2.6 percent.
“The problem? Less than 25 percent of BUD’s sales come through the United States, along with also the dollar … has been very strong lately, [which] means all of their sales in euros or pesos have to translate … into fewer greenbacks,” Cramer explained. “They need to take severe action in order to keep paying their dollar-denominated debts. in which’s an ugly situation. No wonder the stock got pulverized.”
inside case of GE, former CEO John Flannery halved the dividend a year ago, bringing the 24-cent yield down to 12 cents as the company grappled with multi-billion-dollar charges tied to its struggling business segments. When former Danaher chief Larry Culp replaced Flannery as CEO in October, he cut the dividend down to 1 cent after realizing in which GE’s problems were worse than expected.
“in which was totally predictable, … [although] many investors got burned,” Cramer said. “The bottom line? There is usually no such thing as a large dividend you can take for granted. Just like we saw with BUD along with also GE, a hideous balance sheet along with also slowing fundamentals are a toxic brew in which can put your dividend in danger. So if you want income, watch for in which or else you might just get burned.”