Jim Cramer's Best Blogs

Craig Herkert, the CEO, when asked about why the company eliminated the dividend, cited "holistic" reasons for the decision, whatever the heck that is. All I can say is it was a mighty bitter pill for shareholders, many of whom relied on that dividend as an important source of income. That 30 cents yearly, while not making up for the hideous two-thirds decline in the stock since 2008, did routinely draw in buyers with each reiteration of confidence that the CEO made.

Now, there are some important lessons here. First, the supermarket space has gotten incredibly hard lately, a combination of dollar stores becoming more competitive in name-brand offerings, Target(TGT) and Wal-Mart(WMT) moving aggressively into the space and Whole Foods(WFM) taking the high-end consumer from mainstream shops such as Kroger(KR) , Safeway(SWY) and Supervalu.

But second, and most important, is that sometimes outsized yields like Supervalu are out-and-out red flags signaling their own reduction or elimination. Before blindly buying into management's assurances, before thinking, "How can I miss with that yield protection?", do the homework. Supervalu was clearly in a long-term spiral down, something that told you to be more skeptical of the company's "confidence" in the dividend than you might otherwise be concerned about.

To me it's another clear-cut case of the need for not buy-and-hold, the preferred conventional wisdom of graybeards everywhere, but buy-and-homework. If you had done the homework, I believe you could bet that management couldn't fulfill its assurances, and you could have sidestepped today's hideous losses, the worst in the S&P 500.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.