The financial reform bill has certainly caused some consternation among the financial stocks. Wall Street always hates uncertainty and the ambiguity of the 2,000 pages of the financial reform bill has caused plenty of it.

Yesterday, the Dow close down 268 points in what Jim Cramer described as a “horrible, stinking bad day” that was reminiscent of “Stalingrad or Verdun.” Well, maybe not quite that bad.

After looking at the carnage of the financial sector there is one stock that Cramer feels offers investors lots of upside.

Cramer describes Citigroup (C: 26.41 0.00%) as a “pitiful giant”. The stock has suffered from a mishandled attempt by the Treasury to sell their stake in Citi. These strong selling pressures have pushed Citi’s stock price down and there’s more still to come.

However, on a technical basis it appears that Citi is oversold. The Street.com technical analyst Tim Collins believes that the current prices provide a good entry point. He predicts that the stock could rise to $4.60 - $5.00 in the short term.

Cramer is even more positive on the fundamentals. He has faith in CEO Vikram Pandit and likes the firm’s mix of domestic and international business. Most importantly, Cramer believes that Citi has little exposure to housing which is once again become a huge problem area.

Cramer set a $12 price target for Citigroup over the long term. He recommends that investors buy Citi at its current levels.

BP shares have been in freefall since the April 20 explosion on the Deepwater Horizon rig in the Gulf of Mexico. The stock has fallen 44% since April 20 and shares are down nearly 10% again today. This has resulted in BP losing over $92 billion in market cap.

The falling stock price has resulted in BP’s dividend yield being pushed ever higher. Today it stands at 10.8%, but few investors expect to be able capture that dividend. This lack of confidence has caused a glaring absence of value investors to help prop up BP’s sagging stock price.

Investors are not only wary that they may never see BP’s dividend payment, but there still is no clear understanding of how much the Gulf oil spill will end up costing BP or the impact this will have to future earnings.

It almost seems like déjà vu. It was only 18 months ago that JP Morgan, Citigroup, Bank of America and even General Electric were in similar situations. There stock prices were plummeting driving their dividend yields near double digits. However, investors were almost certain that those dividends would need to be cut. Investors also had no clear idea of how much the cost of credit defaults would end up costing or the impact they would have on future earnings.

No one knew when to buy stock in these falling giants, but looking back there was a buy signal.

On January 16, Bank of America reduced their dividend by 97% to only $.01 per share. Seven weeks later, BAC’s stock hit rock bottom - closing at $3.14 per share.

On February 23, JP Morgan Chase slashed its dividend by 87% down to only $.05 per share. Eleven days later, JPM’s stock price hit bottom – closing at $15.90 per share.

On February 27, General Electric cut its dividend by 68% to only $.10 per share. Six days later, GE’s stock price hit bottom – closing at $6.66 per share.

Within days of announcing drastic dividend cuts, all three of these large cap stocks had bottomed and were beginning a dramatic recovery. The market had anticipated the dividend cuts in each case, but the stock price didn’t recover until after the dividend announcement had been made.

Investors that had bought BAC, JPM, and GE stock after they announced their dividend cut would have earned would have earned impressive returns 16 months later.

It’s impossible to predict how low BP’s stock price will go or when it will hit rock bottom. However, if history is any indication, a few days after BP announces their dividend suspension will be when to buy BP stock.

There are several bullish indicators that are pointing to better times ahead. The white-hot China market appears to be set for a soft-landing. The financial system in Spain doesn’t appear ready to collapse. The long awaited financial reform seems to be getting closer.

Of course there are causes for concern as well. Oil is still gushing into the Gulf of Mexico. Unemployment is still extremely high. Higher taxes and possibly even inflation is on the horizon.

Jim Cramer did point out 7 key market indicators this week that investors should pay close attention to:

Chicago Board Options Exchange IPO

Mr. Cramer believes this IPO launch on Wednesday will have “huge implications for the exchanges and the market as a whole.”

Best Buy earnings

Best Buy will be the key earnings report coming out this week and is the “ultimate barometer of discretionary spending” said Cramer.

J.M. Smucker’s earnings

Cramer advised investors to pay attention to comments about the Folger acquisition.

Pier 1 Imports’ earnings

Following a huge run up in their stock price, Pier 1 shares have fallen 30% since Cramer’s recommendation in April.

The Housing Starts and Permits report

Wednesday’s report will be a key indicator for a housing market that appears to have fallen flat since the tax credits expired in April. Cramer expects this number to drop, but low interest rates may provide some lift.

Producer Price Index and Consumer Price Index Report

Investors will likely welcome signs of inflation from this report, as it may indicate that the economy is finally improving.

Options expiration

Investors may see some “unnatural trading” said Cramer due to options expiration in the middle of the week.

Brazil is transitioning from a country that was once separated by radical class divisions into a burgeoning middle-class nation. The middle class now makes up 49% of the population in Brazil and that number continues to grow.

On yesterday’s Mad Money show, host Jim Cramer identified 5 Brazil stocks for international growth investors. These companies are each uniquely positioned to capitalize on the growth in Brazil’s middle class incomes.

Itau Unibanco Holding (ITUB: 13.38 0.00%)

Cramer believes that ITUM is a premier Brazilian bank that is trading at an attractive valuation.

Banco Bradesco (BBD: 13.42 0.00%)

This bank doesn’t get enough credit for its insurance business or its IT investments.

CPL Energia (CPL: 25.51 0.00%)

CPL is an attractive dividend stock with a 7% yield and great exposure to the growing utilities industry.

Gafisa (GFA: 2.99 0.00%)

Cramer calls GFA, “the cheapest homebuilder in the world, and the worst-performing stock.” Gafisa has fallen 25% from last year. However, as more middle class Brazilians buy homes, Gafisa stock will soar higher.

Ambev (ABV: 38.66 0.00%)

ABV is the sole bottler of Pepsi (PEP: 68.77 0.00%) in Brazil and of beer brands that together have a hold on 70% of the Brazilian market. This stock also has a decent 3.6% dividend yield.

Cramer also likes Vale (VALE: 17.93 0.00%) and Petroleo Brasileiro (PBR: 19.25 0.00%) as terrific plays on Brazil.

While just picking the highest yielding dividend stocks haven’t been a winning strategy in 2010, that doesn’t mean that investors should stay away from stocks with high yields altogether. In fact, 9 out of the 12 highest yielding dividend stocks in the Dow have posted gains this year. 6 Dow dividend stocks have already posted gains of over 10% this year. That doesn’t include their dividend yield (which ranges from 3% - 5%).

eDividendStocks.com has put together a list of 6 Dow dividend stocks that are thriving in 2010.

DuPont

Only three other Dow stocks have posted better 2010 performances than DuPont, which has seen their stock price climb over 16% since the beginning of the year. In January the stock was yielding over 5% and still offers an impressive 4.2% yield following their strong stock performance.

Home Depot

Home Depot’s stock price has been climbing steadily higher since reporting earnings in February. The stock has gained 15% since the beginning of 2010, but still yields 2.8%.

Caterpillar

Even with a 15% gain in their stock price this year, Caterpillar still offers a 2.6% dividend yield. Growth prospects at this industrial firm appear bright as well, with analysts expecting earnings to grow by 22% this year and 49% in 2011.

Kraft Foods

Kraft is the 4^th highest yielding stock in the Dow index with a 3.8% dividend yield. In 2010, investors have not only enjoyed their nice yield, but also the 11% gain in their stock price.

Intel

Intel increased their quarterly dividend by 12.5% in January and currently offers investors a 2.8% dividend yield. Dividend growth investors are not only happy with the dividend increase, but also the 11% jump in Intel’s share price this year.

McDonald’s

Since 2006, McDonald’s has been the top performing stock in the Dow Jones index. Their stock gained 86% in that time frame and is up 10% again in 2010. The fast food chain offers dividend investors a 3.2% dividend yield and has increased their dividend every year since 1976.

Don’t be fooled by AT&T and Verizon’s subpar performances this year, high yielding Dow dividend stocks are thriving in 2010.

Alcoa has reported disappointing earnings results in four out of the last six quarters and has seen its stock price fall 68% since July 2007. EarningsPreviews.com is predicting yet another tough quarter for the aluminum stock.

Last year, Alcoa earned -$.80 per share and saw revenues decline over 31%. Klaus Kleinfeld, Alcoa’s President and CEO, commented last quarter, “This was a tough year for the aluminum industry – a price crash, demand destruction, and credit crunch.”

Despite the difficult financial performance, Alcoa’s shares delivered an impressive 43% gain last year. However, since the beginning of 2010, Alcoa’s stock has dropped nearly 9%, and has been the worst stock performer in the Dow Jones index.

Alcoa’s stock performance tends to move in-line with aluminum prices. While aluminum prices rose over the course of the first quarter, it is doubtful that the positive effect of these rising prices will be felt until next quarter.

The current Wall Street analyst consensus estimates call for revenues of $5.25 billion and EPS of $.13. We are forecasting first quarter revenue of $5.18 billion and $.11 EPS.

Alcoa is now trading at 13x consensus 2011 EPS estimates. This is below the relative valuations of their peer group. We still believe that Alcoa could turn in a solid stock performance in 2010, but probably not in the near term with weak earnings results expected next week. 

1. Transports are strong – transports are an excellent indication of the markets direction since they show the movement of products and active commerce.

2. Rally in the banking index - since available credit is the lifeblood of business, strong financials generally points to a strong market.

3. Positive Reaction to Upgrades - in a bear market, no one cares about analyst upgrades. But yesterday Lincoln National (LNC: 20.86 0.00%) stock jumped on an analyst upgrade this week which is a bullish sign.

4. Tech Rally - the bellwether tech stocks are climbing higher. Apple (AAPL: 530.12 0.00%), Oracle (ORCL: 26.25 0.00%), Microsoft (MSFT: 29.72 0.00%) and Intel (INTC: 26.19 0.00%) have all posted solid gains in recent weeks, indicating that the long-term tech themes are gaining strength.

5. Cash Is Stashed on the Sidelines – over the last 3 years, a lot of investors got out of stocks completely. With cash on the sidelines, it is only a matter of time before they start pouring it once again into stocks.

6. Acquirers Rally - when the market is flat or down, acquiring companies that announce an acquisition generally see they shares fall. However, Massey Energy (MEE: 0.00 N/A) was up nearly 6% yesterday after it announced it is going to buy Cumberland Oil & Gas.

7. Positive Reaction to Secondary Offerings - often investors worry that secondary offerings are going to dilute share value. However, Hartford Financial (HIG: 17.30 0.00%) rallied 5% on the announcement of its secondary offering.

8. IPOs Rise in Price - in a bear market, few companies are willing to go the IPO route. Even when there is an initial public offering, it starts the day flat or declines. Financial Engines (FNGN: 19.85 0.00%) saw a big jump in its first day of trading.

9. The Market Has Good Breadth - the number of stocks posting gains are outnumbering the number of stocks on the decline. Before the market crashed, the opposite was true.

10. Pessimism is High - the fact that there are so many pessimists and cynics prevents the market from getting overhyped and is keeping prices in check.

Cramer said that he has been using these 10 factors for over 30 years to judge the health of the stock market and they are almost never wrong.

Mr. Cramer took a look at the 10 underperforming Dow stocks in 2010 that appear to be holding back the Dow Jones index.

American Express (AXP: 55.65 0.00%) – despite the stock being down 2% for the year, Cramer wouldn’t be surprised to see the financial stock rally 12%. Corporate travel is coming back and Cramer has a $45 price target for AXP.

Exxon Mobil (XOM: 81.91 0.00%) - has declined 2% this year and has failed to rally despite oil prices climbing to $80 per barrel. Cramer feels than until the deal with XTO Energy (XTO: 0.00 N/A) goes through, the energy stock is going to remain range bound. Cramer mentioned that he would be surprised if the stock goes up more than 3 points in the near future.

Chevron (CVX: 100.14 0.00%) – despite the recent positive statements by Chevron at an analyst meeting, Cramer recommends that investors sell the stock.

IBM (IBM: 197.89 0.00%) - while Cramer expects that IBM is having a good quarter and will likely report great earnings next month, the stock is likely stuck in neutral until then.   

Coca Cola (KO: 75.12 0.00%) - Cramer believes that Coke won’t be moving up from its 5% decline any time soon.

Pfizer (PFE: 22.56 0.00%) – Cramer labeled Pfizer as the “Lusitania of the Dow” and predicts that the stock will lose another $1.

Microsoft (MSFT: 29.72 0.00%) - Windows 7 appears to be selling very well and Cramer doesn’t expect Microsoft to stay low much longer. Cramer set a $32 price target for Microsoft.

AT&T (T: 33.29 0.00%) and Verizon (VZ: 41.37 0.00%) – the price war between these two telecom giants has resulted in both declining over 10% this year. However, Cramer predicts a recovery for both companies in the near future and expects that both will raise their dividends this year. His price target for AT&T is $28; while his price target for Verizon is $33.

Alcoa (AA: 8.50 0.00%) - has been the Dow’s biggest loser in 2010 with a 15% decline. Cramer still doesn’t recommend the stock despite their strong cash flows.

However, there are a few shining stars among the Dow components as well. Cramer pointed to Cisco Systems (CSCO: 16.55 0.00%), McDonald’s (MCD: 89.62 0.00%) and Bank of America (BAC: 6.98 0.00%).

Before the great recession hit in 2007, financial stocks offered dividend investors some of the most attractive yields in the market. Of course as Wall Street crumbled and age-old firms vanished, so did the dividend yields that these financial firms offered.

JP Morgan Chase (JPM: 33.93 0.00%) offered investors a 4.8% dividend yield at the end of 2008 before slashing their dividend payment by 87% in 2009. Now they offer a paltry 0.5%.

Citigroup (C: 26.41 0.00%) had consistently paid dividends since its inception in 1998. During 2006 – 2007, Citi offered a healthy dividend yield between 3% – 4% and as their stock price crashed in 2008 their yield jumped to over 7%. However, in early January 2009 as their stock price was headed below $1, the financial giant completely eliminated their dividend is a massive cost cutting move.

Bank of America (BAC: 6.98 0.00%) offered a respectable 4% dividend yield before the market crash sent their dividend yield above double-digits. In October 2008, Bank of America cut their dividend in half after the financial firm saw earnings fall 68% in the third quarter. Just three months later, under pressure from the federal government, Bank of America slashed their dividend by 97% to a meager $.01 per share each quarter.

With the flood of dividend increases that we have seen in 2010, many have been anticipating similar increases from these financial stocks. However, the Financial Times reported yesterday that U.S. regulators have advised these firms to not increase their dividends nor engage in stock buyback programs “until political and economic uncertainty surrounding the industry dissipates”.

JP Morgan Chase, which is arguably in the best shape of any financial firm, has indicated that they would like to increase their dividend payment from its current nominal level. However, dividend investors shouldn’t bet against the influence of the Fed. We likely will not see any dividend increases from these financial stocks until at least the second half of this year and probably not until 2011.

Of course there is much more to evaluating a dividend stock than just looking at its yield. Intelligent investors will look not only at a stock’s yield, but also at their payout ratio or the ratio of dividend payments to net earnings. A high dividend payout ratio is typically a warning sign that the current dividend level is unsustainable. However, eDividendStocks.com has taken a look at 5 dividend stocks that have dangerously high, but also very deceiving payout ratios. These 5 dividend stocks offer investors impressively high dividend yields, and they have sufficient free cash flow to maintain their dividend payments.

Qwest Communications

Qwest (Q: 0.00 N/A) offers dividend investors an impressive 6.9% dividend yield. Wall Street expects that net earnings will decline by 10% this year, pushing the stock’s dividend payout ratio to 94%. However, the company generated nearly $2 billion in free cash flow in 2009 and has very impressive EBITDA margins (36% in the fourth quarter). With a manageable dividend/free cash flow ratio, Qwest should be able to maintain their dividend payout despite Wall Street’s expectations of further revenue declines in 2010 and 2011.

Frontier Communications

Frontier Communications (FTR: 3.37 0.00%) is the highest yielding stock in the S&P 500 with an amazing 13.7% dividend yield. The telecom stock is in the midst of acquiring assets from Verizon (VZ: 41.37 0.00%) in an $8.6 billion deal. Once the transaction is completed the company will reduce their dividend to $.75 per year. The dividend reduction along with the Verizon transaction will significantly improve their dividend payout ratio from their current 175% level, but will still offer investors an amazing 10% dividend yield.

Windstream

Windstream (WIN: 9.39 0.00%) is the second highest yielding dividend stock in the S&P 500 with a 9.6% dividend yield. While the company’s annual dividend payout of $1.00 per share exceeds their anticipated net earnings of $.85 per share, the telecom stock is only expected to pay out 55% of their free cash flow in 2010. Wall Street also expects the stock to grow earnings in both 2010 and 2011.

Paychex

Paychex (PAYX: 29.91 0.00%) currently offers investors a respectable 4% dividend yield, but at the same time they are using 93% of their net earnings to fund their dividend payment. However, Wall Street is expects the company’s earnings to grow by 8% in 2011. Though the labor markets are still a long way from full recovery, investors are recognizing that Paychex outlook is much brighter than it was just a few quarters ago.   

Verizon

While Verizon (VZ: 41.37 0.00%) may be the second highest yielding dividend stock in the Dow Jones index, declining earnings in 2010 could put pressure on the company’s high dividend. However, given the company’s strong dividend history we believe a dividend cut is unlikely from Verizon - despite a dividend payout ratio that is now above 80%. A costly marketing battle with AT&T (T: 33.29 0.00%) could prevent Verizon from increasing their dividend this year, but the chances of a dividend cut are slim.

When evaluating dividend stocks, free cash flow is often a much better measure to look at than net earnings. Without looking at a company’s cash flow, you can often be ignoring great dividend stocks. A high dividend payout ratio certainly shouldn’t preclude you from doing further analysis on a great dividend opportunity.