Cramer: Top Dividend Stocks for Investors

Mad Money's Jim Cramer gave investors four top dividend stocks for investors fearing recession in 2008. But which of those four are most likely to be higher one year from now?

I am a confessed Cramer-holic. Say what you will about the Mad Guru of CNBC's Mad Money, but few people have done more to help interest people -- especially younger, college-age people -- in the stock market than Jim Cramer. The man is not perfect; he's had his good calls, his bad calls, and some amazing, controversial moments (his "They know NOTHING!" rant against the Fed in 2007 being the most memorable of late). But on balance, I'm always glad to hear what the guy has to say.

I have been screening some of Jim Cramer's stock picks through the lens of TradingMarket's PowerRatings. There are many differences between Cramer's stock picking approach and PowerRating's method of highlighting stocks that are likely to be higher in a year's time. But both Cramer and PowerRatings share the idea of buying weakness and selling strength, of letting stocks "come in" rather than chasing them higher or lower.

This week Cramer pointed to four stocks that he said had the kind of strong, consistent dividend payouts that investors fearing a recession this year may want to consider investing in. With dividend yields comparable to that of longer-term bonds and the potential for capital gains, Cramer suggested that stocks like Dow Chemical (DOW@DOW | Quote | Chart | News | PowerRating), Bristol Meyers Squibb (BMY@BMY | Quote | Chart | News | PowerRating), Verizon (VZ@VZ | Quote | Chart | News | PowerRating) and Altria Group (MO@MO | Quote | Chart | News | PowerRating), might be better bets for investors right now.

So these four passed Cramer's muster. But which of the four are more likely than the others to be higher one year from now? And of the ones that are not expected to perform as well, can PowerRatings help us find even better alternatives?

Let's start with the two stocks of Cramer's four that have the highest PowerRatings.

Bristol-Meyers Squibb is a stock worthy of recommendation. With a PowerRating of 8, Bristol-Meyers is among that group of stocks that our research tells us is 74% likely to be higher one year from now. Compare that to the reliability of the average stock, which has been higher one year later less than 68% of the time.

Bristol-Meyers is also a member of a top-rated industry, Major Drug Manufacturers, which has a PowerRating of 10. 10-rated industries are far and away the best places for investors to find stocks. Our research, going back to 1995 and looking at thousands and thousands of simulated trades, revealed that 10-rated industries have produced average annualized returns of more than 35%. The average industry, by comparison, has returned 14.61% over the same period.

The other of Cramer's stocks that gets the PowerRating seal of approval is Altria Group. Altria Group, like Bristol-Meyers Squibb, has earned a PowerRating of 8. 8-rated stocks, in addition to being higher one year later more than 74% of the time, have also tended to gain, on average, more than 17% in a year. The average stock, by comparison, has tended to gain 12-13% after one year.

Unlike Bristol-Meyers, however, Altria Group comes from a particularly low-rated industry, Cigarettes, with an industry PowerRating of 3. This means if you are going to be investing in this group, sticking with a stock with as high a PowerRating as Altria Group is crucial.

What about Verizon and Dow Chemical? Verizon, for its part, is a fairly average stock from a fairly average industry. Verizon has a PowerRating of 7, and comes from an industry, Domestic Telecom Services, that has a PowerRating of 6. This is the PowerRating equivalent of "market perform."

While Verizon may deliver when it comes to dividends, investors looking for a little more growth may consider two of Verizon's companions in the domestic telecom industry: BCE Inc. (BCE@BCE | Quote | Chart | News | PowerRating) with a PowerRating of 9, and Citizens Communications (CZN@CZN | Quote | Chart | News | PowerRating) with a PowerRating of 8.

BCE Inc. is a telecommunications company based out of Montreal, Quebec. As a 9-rated stock, BCE belongs to that class of stocks that has been higher one year later more than 79% of the time. Stocks with PowerRatings of 9 have also average annual returns of more than 18%. Citizens Communications, with its PowerRating of 8, is a New England based local exchange carrier. BCE Inc. has a dividend yield of 3.8. Citizens Communications, on the other hand, has a dividend yield of 8.8.

Dow Chemical is the last of Cramer's four dividend stocks for investors. Dow Chemical has a dividend yield of 4.6, and a PowerRating of 7. Like Verizon, a 7-rated stock like Dow Chemical is considered to be at the upper end of average in terms of reliability (likelihood of being higher one year from now) and growth potential (likely average gain in a year's time).

Interestingly, Dow Chemical -- like Bristol-Meyers -- comes from an industry with a very high PowerRating of 10. The Major Diversified Chemical industry, of which Dow Chemicals is a part, has a few stocks with PowerRatings equal to that of Dow, but only one stock, Ashland Inc. (ASH@ASH | Quote | Chart | News | PowerRating) with a higher PowerRating of 8. A diversified chemical company, Ashland Inc. has a P/E of 12.30 and a dividend yield of 2.5. Compared to Dow Chemical, Ashland might provide more upside, but for dividends, Dow remains the better bet.

PowerRating Charts are now live! Click here to launch them.