The newest short interest totals for Sirius XM (NASDAQ:SIRI) have just been released on Tuesday December 11, and they are the highest they have been in over a year at a whopping 339,089,166 shares according to nasdaq.com:
|Settlement Date||Short Interest||Avg Daily Share Volume||Days To Cover|
These numbers are perfect for a huge short squeeze, or as Seeking Alpha analyst Stephen Faulkner puts it - the Perfect Storm For A Short Squeeze. But he also points out that those shorts will have to dole out the special dividend of five cents a share that the company will pay to shareholders this month:
Why is this such a problem for those with a short position? Because those with a short position are on the hook for the dividend to the longs that they "borrowed" the shares from. That's right, each and every share short will require the short holder to pay out $0.05 on December 18th. When you consider 339 million shares short, that is nearly $17,000,000 that shorts will need to pay out in cash as a loss.
Since I usually do not buy dividend stocks, and never short any stocks, I was not aware of this. But it is one more reason for shorts to cover immediately. The stock goes ex-dividend on Friday December 14:
|Ex/Eff Date||Type||Cash Amount||Declaration Date||Record Date||Payment Date|
Dividend rules and dates can be extremely confusing. Even the SEC provides a disclaimer (below), that says to consult a broker or securities attorney with any questions. You can always check the financial sites for the published ex-dividend date. Usually the last day to buy a stock and receive the dividend is three business days before the record date. This is because it takes that long for the company to record the shares:
Once the company sets the record date, the stock exchanges or the National Association of Securities Dealers, Inc. fix the ex-dividend date. The ex-dividend date is normally set for stocks two business days before the record date. If you purchase a stock on its ex-dividend date or after, you will not receive the next dividend payment. Instead, the seller gets the dividend. If you purchase before the ex-dividend date, you get the dividend.
If you sell your stock before the ex-dividend date, you also are selling away your right to the stock dividend. Your sale includes an obligation to deliver any shares acquired as a result of the dividend to the buyer of your shares, since the seller will receive an I.O.U. or "due bill" from his or her broker for the additional shares. Thus, it is important to remember that the day you can sell your shares without being obligated to deliver the additional shares is not the first business day after the record date, but usually is the first business day after the stock dividend is paid.
If you have questions about specific dividends, you should consult with your financial advisor. You can also get information by going to your library and reading Standard and Poor's Dividend Record Binder.
We have provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.
So that means that Thursday, December 13 is the last day to buy Sirius XM and get the special dividend. This was a nice holiday surprise for Sirius shareholders, and when it was announced it included news of a long awaited $2 billion share buyback. To a lot of investors (guilty) it feels like the stock has not moved on this positive news. However it has come up from $2.70 two weeks ago amid investor selling to scoop up 2012 capital gains tax rates before the impending 2013 uncertainty:
And when you compare it to its NASDAQ associate Apple (NASDAQ:AAPL), and the other three major market indices, Sirius is doing exceptionally well. As you can see from the chart below, it is up 60% for the year in comparison to Apple at a hefty 40%. Many analysts believe that the entire market will remain very volatile until the fiscal cliff situation is resolved:
Although there are a handful of writers that think that short squeezes are insignificant concerning Sirius and its share price, Faulkner has proven in his article (linked above), that the price does go up with higher short interest in the company. I have personally seen how this amount of short interest can "act as rocket fuel" to send Sirius shares soaring. So for everyone that wants to get in on the special dividend, Thursday is the last day to have the shares in your account.
And if you are a short, I would take the advice of the SEC and consult your broker, or a securities attorney immediately. Because there are two additional things that could happen any minute. First the FCC could announce the approval of the Liberty (NASDAQ:LMCA) takeover of Sirius, and there could be a truce in Washington concerning the fiscal cliff.
Corporate leaders and investors alike are losing patience with both sides of the situation, which might force an agreement soon. JP Morgan CEO Jamie Dimon said he is now "barely a Democrat", and thinks that there could be consequences if the government doesn't act soon. There are many who agree, and others who are "barely a Republican" after all of this. As the outside forces continue to hammer officials, eventually they will have to come to an agreement. So why not do it now:
"We are one decision away from restoring our fiscal and moral authority from around the world," Dimon said at the New York Times Dealbook Opportunities for Tomorrow conference in New York. "Let's just do it."
The combination of a fiscal cliff agreement, FCC approval, share buybacks, a special dividend and a potentially huge short squeeze will have a dramatic positive impact on the share price of Sirius. If you try to time the occurrence of this many variables to get the lowest possible price, you could lose out on some really big gains.
Additional disclosure: I may continue to buy shares of Sirius XM in the next 72 hours.