We like high dividend stocks and consider them as great alternatives to 10-year Treasury bonds. Like Jim Rogers, we are concerned about the Fed’s inflationary monetary policy and want to protect ourselves against inflation. One of the ways of doing this without assuming significant risks is investing in high dividend stocks.
High dividend stocks are usually safer but under some circumstances they might be extremely dangerous. Vulnerable high dividend yielding companies may be targeted by short sellers. So high short interest in high dividend stocks may signal danger.
We compiled the list of stocks that have at least a 5% dividend yield and a minimum of 5% open short interest (data is sourced from Fidelity). We also require that the short interest has been increasing compared to the previous month. These stocks may be substantially riskier than other high dividend yielding stocks:
Company Name | Symbol | Dividend Yield | 2011 Return |
AMERICAN CAPITAL AGENCY | 19.4 | 10.1% | |
HATTERAS FINANCIAL CORP | 14.5 | -1.6% | |
FRONTIER COMMUNICATIONS | 9.5 | -14.4% | |
VECTOR GROUP LTD | 8.9 | 6.8% | |
FRONTLINE LTD | 8.0 | -41.3% | |
OMEGA HEALTHCARE INVESTORS | 7.4 | -4.8% | |
REGAL ENTERTAINMENT GROUP | 7.1 | 6.9% | |
MEDICAL PROPERTIES TRUST | 7.0 | 9.4% | |
NEW YORK COMMUNITY BANCORP | NYB | 6.7 | -19.5% |
REDWOOD TRUST INC. | 6.7 | 2.6% | |
NORDIC AMERICAN TANKER SHIPPING | 6.4 | -13.5% | |
HEALTHCARE REALTY TRUST INC | 5.9 | -0.8% | |
POTLATCH CORP | 5.8 | 11.8% | |
PARK NATIONAL CORP | 5.8 | -7.2% | |
HEALTH CARE REIT INC. | 5.5 | 13.2% | |
DCT INDUSTRIAL TRUST INC | 5.5 | -1.5% | |
R.R. DONNELLEY & SONS CO | 5.4 | 13.1% | |
INTEGRYS ENERGY GROUP INC | 5.3 | 9.2% | |
REALTY INCOME CORP. | 5.2 | -0.3% | |
HCP INC | 5.2 | 2.3% | |
VALLEY NATIONAL BANCORP | 5.2 | 1.4% | |
LEXINGTON REALTY TRUST | 5.1 | 17.5% | |
EASTGROUP PROPERTIES INC. | 5.0 | 2.0% |
High dividend stocks usually beat the market on the average. Unfortunately, these 23 stocks returned 0.1% since the end of 2010, including dividend payments. The S&P 500 index returned more than 4% during the same time frame. Fourteen of the 23 high dividend stocks on this list underperformed the market.
The companies on this list are mainly real estate trusts, financials, and shipping companies. Some of these companies are favored by prominent hedge fund managers. Brian Jackelow’s SAB Capital had more than $130 Million in AGNC at the end of March. AGNC was Jackelow’s largest position (See SAB Capital’s top three stock picks here). Jim Simons also had $10 Million in AGNC. Jim Simons also had nearly $20 Million in Frontier Communications (FTR) which is third in our list (See Jim Simons’ favorite stocks). The worst performing stock in this list is Frontline (FRO). Ken Brodkowitz’s Newland Capital had the largest position in FRO with a $16 Million investment at the end of March. Ken Brodkowitz used to work for Raj Rajaratnam. Brodkowitz also had nearly $22 Million in another high dividend yielding stock, R.R. Donnelley (Check out his top picks here).
Disclosure: I am long FTR.
