Historically, high-dividend stocks performed better than the market and had lower risks. They are especially good investments in inflationary environments as they can protect investors from inflation. We have been encouraging investors to play defensively by purchasing high dividend stocks because we are concerned that the expansionary monetary policies of the Fed will lead to inflation. However, some high dividend stocks are vulnerable and are not so good to invest in. These stocks are riskier and are relatively more likely to be targeted by short sellers.
Below we compiled a list of such stocks. All companies have a market cap of at least $5 billion, dividend yields higher than 4% and a minimum of 5% open short interest. In addition, the short interest in these stocks has been increasing compared with the previous month. Market data sourced from Fidelity.
Company | Symbol | Dividend Yield % | Short % | % Chg in Short | 52-week return % |
HCP INC | 5.02 | 5.36 | 2.05 | 17.68 | |
LOCKHEED MARTIN | 5.20 | 6.37 | 3.1 | 12.05 | |
DUKE REALTY CORP | DRE | 5.94 | 10.35 | 1.55 | -8.97 |
ENTERTAINMENT PROPERTIES TR | 6.49 | 5.73 | 8.61 | 2.69 | |
VALLEY NATIONAL | 5.79 | 12.86 | 2.7 | -9.51 | |
CBL & ASSOCIATES | 5.57 | 12.35 | 3.55 | -14.79 | |
REGENCY CENTERS | 5.18 | 10.31 | 4.39 | -13.24 | |
REGAL ENT. GROUP | 6.29 | 10.66 | 14.7 | -8.12 | |
PIEDMONT OFFICE REALTY TRUST | 7.78 | 6.95 | 22.27 | -17.78 | |
WINDSTREAM CORP | 8.60 | 8.8 | 19.7 | -17.75 | |
R.R. DONNELLEY | RRD | 7.29 | 13.31 | 15.63 | -17.62 |
OLD REPUBLIC | 7.57 | 7.13 | 19.66 | -30.45 |
On average, high dividend stocks beat the market over the past 80 years. That’s been the case in 2011 as well. However, the 12 stocks listed above returned a negative 8.82% during the past 52 weeks, while SPY returned 1.70% in the same period.
The stock that suffered the biggest loss in the past 52 weeks was Old Republic International Corp (ORI), an insurance underwriting company that recently declared a quarterly cash dividend of 17.50 cents per share. ORI has an open short interest of 7.13% and its short interest increased by 19.66% in the past month. The stock lost 30.45% during the past 52 weeks, underperforming the market by 32 percentage points.
Piedmont Office Realty Trust Inc (PDM) is the second worst performing stock, returning -17.78% during the past 52 weeks. The increase in its short interest in the past month is also the highest among the stocks above. Its current open short interest is 6.95%, up 22.27% during the past month. PDM has a dividend yield of 7.78%. PDM was not very popular among hedge funds. Among the 300+ hedge funds tracked by Insider Monkey, only five invested in PDM at the end of September. The biggest holder was D.E. Shaw, which invested only $2 million in PDM.
Windstream Corp (WIN) also had a double-digit loss in the past 52 weeks. It was down 17.75% in that time frame. The open short interest for WIN is 8.8%, up 19.7% in the past month. WIN also pays a fat dividend. It has a dividend yield of 8.60%, the highest among the 12 stocks listed above.
R.R. Donnelley & Sons Co (RRD) has the highest open short interest of 13.31%. During the past month, the short interest for RRD was increased by 15.63%. RRD has a dividend yield of 7.29% and lost 17.62% during the past 52 weeks.
Lockheed Martin Corp (LMT) and HCP Inc (HCP) are also targeted by short sellers. These two large-cap stocks have dividend yields slightly above 5%. HCP’s open short interest is 5.36% and the short interest increased 2.05% in the past month. LMT has an open short interest of 6.37%, up 3.1% in the past month. These two stocks performed relatively well in the past 52 weeks. HCP returned 17.68% and LMT was up 12.05% during that period. In the third quarter, Jim Simons sold out all his stakes in LMT.
Other dividend stocks short sellers are targeting include Duke Realty Corp (DRE), Entertainment Properties Trust (EPR), Valley National Bancorp (VLY), CBL & Associates Properties Inc (CBL), Regency Centers Corp (REG), and Regal Entertainment Group (RGC). We recommend investors to be careful about these stocks.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
