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We like high dividend stocks and consider them as alternatives to 10-year Treasury bonds. Like Jim Rogers and Ray Dalio, we are concerned about the Fed’s inflationary monetary policy and want to protect ourselves against inflation. One of the ways we can do this without assuming significant risks is by investing in high dividend stocks.

High dividend stocks are usually safer, but under some circumstances, they might be extremely dangerous. The 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 5% dividend yield and a minimum of 5% open short interest. 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

YTD Return

PROSPECT CAPITAL CORP

(NASDAQ:PSEC)

14.8

-19.5%

FRONTIER COMMUNICATIONS

(NASDAQ:FTR)

10.7

-24.7%

PDL BIOPHARMA INC

(NASDAQ:PDLI)

10.4

-2.9%

OLD REPUBLIC INTERNATIONAL

(NYSE:ORI)

7.6

-30.6%

VALLEY NATIONAL BANCORP

(NYSE:VLY)

6.5

-20.0%

HEALTH CARE REIT INC.

(NYSE:HCN)

6.2

1.7%

PEPCO HOLDINGS INC.

(NYSE:POM)

5.8

4.6%

ARMOUR RESIDENTIAL REIT INC

(NYSE:ARR)

19.4

7.9%

HNI CORP

(NYSE:HNI)

5.6

-45.8%

OMEGA HEALTHCARE INVESTORS

(NYSE:OHI)

9.6

-22.0%

EMPIRE DISTRICT ELECTRIC CO.

(NYSE:EDE)

6.6

-10.5%

HATTERAS FINANCIAL CORP

(NYSE:HTS)

14.6

-3.2%

UNITED BANKSHARES INC

(NASDAQ:UBSI)

6.0

-30.4%

EASTGROUP PROPERTIES INC.

(NYSE:EGP)

5.7

-11.5%

HCP INC

(NYSE:HCP)

5.7

-5.1%

EQUITY ONE INC.

(NYSE:EQY)

5.2

-4.4%

NATIONAL RETAIL PROPERTIES

(NYSE:NNN)

6.3

-3.4%

REALTY INCOME CORP.

(NYSE:O)

5.4

-2.7%

CYPRESS SHARPRIDGE INVT

(NYSE:CYS)

18.1

12.9%

PARK NATIONAL CORP

(NYSEMKT:PRK)

7.4

-26.5%

DCT INDUSTRIAL TRUST INC

(NYSE:DCT)

6.8

-20.1%

UIL HOLDINGS CORP

(NYSE:UIL)

5.4

10.7%

NORDIC AMERICAN TANKERS

(NYSE:NAT)

6.5

-32.6%

GETTY REALTY CORP.

(NYSE:GTY)

11.6

-45.0%

FRANKLIN STREET PROPERTIES

(NYSEMKT:FSP)

6.5

-14.5%

High dividend stocks usually beat the market on the average. Unfortunately, these 20 stocks lost 13.5 % year to date, including dividend payments. S&P 500 ETF (NYSEARCA:SPY) lost about 9.5% during the same time frame. Fourteen of the 25 stocks on the high dividend stocks list underperformed the broader market.

The companies in this list are mainly real estate trusts and financials. Some of these companies are favored by prominent hedge fund managers. More hedge funds own Prospect Capital (PSEC) than any other stock on the list. Jim Simons increased his holdings in by more than 50% in the second quarter. He now has about $8.5 Million with PSEC (check out Jim Simons’ favorite stocks). Tudor Investment Corp, AQR Capital Management, Highbridge Capital Management and SAC Capital Advisors all initiated positions in the stock in the second quarter. As of the end of the most recent reporting period, fourteen hedge funds had Frontier Communications (FTR). The stock has lost nearly 25% so far this year, so apparently these hedge fund managers seem to take it as a buying opportunity.

HNI Corp (HNI) lost nearly half its value since the beginning of the year. Eight hedge funds seemed to have thought it was still a keeper as of the end of June. Jim Simons, Paul Tudor Jones and Steven Cohen all actually initiated positions in the stock last quarter, albeit they were quite small (see Steve Cohen's top stock picks).

The other companies aren’t really favored by hedge funds, so investors should do their due diligence carefully before initiating any positions in these stocks.

Disclosure: I am long FTR.

Source: 25 High Dividend Stocks Targeted By Short Sellers