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Dividend stocks have been relatively strong in a weak market, but there are a number that have been targeted by shorts. In many cases, some of these dividend stocks have been mercilessly beaten-down due to extreme pessimism, investors selling for tax-loss purposes at the last weeks of the year, and shorts. When too many shorts pile into the same stock, it often results in a cycle which can start with a panic sell-off in the stock, forced margin call selling, which can lead to tax-loss selling which can lead to even more selling to a point where the stock is ridiculously undervalued.

At the end of the year these cycles frequently reverse and these reversals often begin with the end of tax loss selling in the last days of December, then the stock starts to show strength, then buyers get confidence to buy since the stock has bounced off the lows, and this often triggers a short squeeze as heavily shorted stocks are covered. With not many trading days left this year, these heavily shorted dividend stocks could be poised to rally as the tax loss selling that has been pressuring these stocks comes to an end. (The days to cover number represents how many days of average volume it would take for shorts to cover their entire position. The higher the number of days to cover means the possibility for a short squeeze is greater, and the potential size of the short squeeze is also greater.):

Amerigas Partners, LP. (NYSE:APU) is a leading distributor of propane gas in the United States. This company distributes propane gas to about 1.3 million residential, commercial and other customers through a nationwide network of distribution points. This stock offers a generous dividend and significant upside if shorts begin to cover their positions in a January rally fueled by the end of tax loss selling.

Here are some key points for APU: Current share price: $43.92 The 52 week range is $36.76 to $51.50 Earnings estimates for 2011: $2.97 per share Earnings estimates for 2012: $3.03 per share Annual dividend: $2.96 per share which yields 6.8% Number of shares short: about 520,000 Days to cover: about 9 days, based on average volume

R.R. Donnelley & Sons (NASDAQ:RRD) is a leading commercial printer of products like catalogs, magazines, forms, labels. This stock was trading around $19 per share in early August, but has since plummeted about 20% just in the last few weeks. It looks like an exceptional value on any dips now because it yields over 7%. It is also trading near the 52 week lows, which means it is probably being sold for tax losses now. That could be setting it up for a rebound in January, and the heavy short interest could fuel the rally even more.

Here are some key points for RRD: Current share price: $14.30 The 52 week range is $12.90 to $21.34 Earnings estimates for 2011: $1.89 per share Earnings estimates for 2012: $2.08 per share Annual dividend: $1.04 per share which yields 7.2% Number of shares short: about 24.9 million Days to cover: about 9 days, based on average volume

Getty Realty Corporation (NYSE:GTY) is a real estate investment trust (REIT) that primarily owns and leases auto repair, gas stations and convenience store properties. In just a few weeks this stock has dropped from about the $25 level to the current price around $13. This stock has already started to rebound somewhat and pays a very strong dividend yield, over 7%. A recession is not likely to hurt this type of REIT because people will still be buying gas even in a down economy.

Here are some key points for GTY: Current share price: $13.18 The 52 week range is $12.22 to $32.20 Earnings estimates for 2011: $2.14 per share Earnings estimates for 2012: $2.14 per share Annual dividend: $1 per share which yields 7.5% Number of shares short: about 1.67 million Days to cover: about 8 days, based on average volume

Pitney Bowes, Inc. (NYSE:PBI) offers mail processing equipment and provides equipment, supplies, software, services, and solutions for mailing. This stock has dropped with the markets and now trades at bargain levels, near the 52 week low. Earlier this year, PBI shares were regularly trading around $22, and they should rebound higher once the markets stabilize, and the tax loss selling ends.

Here are some key points for PBI: Current share price: $18.27 The 52 week range is $18.12 to $26.36 Earnings estimates for 2011: $2.28 per share Earnings estimates for 2012: $2.30 per share Annual dividend: $1.48 per share which yields 8.1% Number of shares short: about 30.5 million Days to cover: about 13 days, based on average volume

Starwood Property Trust, Inc. (NYSE:STWD) is a real estate investment trust that is focused on originating, financing, and managing commercial mortgages. This stock was trading around $20 before the market correction and offers a high yield and rebound potential. It has already started to rebound off the recent lows and that could be a sign that it is poised for an even bigger move into 2012.

Here are some key points for STWD: Current share price: $19.13 The 52 week range is $16.58 to $23.67 Earnings estimates for 2011: n/a Earnings estimates for 2012: n/a Annual dividend: $1.76 per share which yields 9.4% Number of shares short: about 64.8 million Days to cover: about 6 days, based on average volume

Windstream Corporation (NASDAQ:WIN) provides communications services (primarily to rural areas), such as local and long distance, Internet access, data services, and video services. This is also one of the top yielding stocks in the market and has recently dipped, which has created a solid buying opportunity. Any more dips to around $11 are likely to payoff for investors buying and willing to hold through at least January.

Here are some key points for WIN: Current share price: $11.72 The 52 week range is $10.76 to $14.40. Earnings estimates for 2011: 79 cents per share Earnings estimates for 2012: 85 cents per share Annual dividend: $1 per share which yields 8.6% Number of shares short: about 45 million Days to cover: about 6 days, based on average volume

Compass Diversified Holding (NYSE:CODI) invests in small to midsized companies. Compass recently agreed to acquire Camelback and already has invested in companies like Staff Mark, Liberty Safe, Ergo Baby Carrier and others. With a yield of about 12%, this stock looks like a solid buy for income investors. Because it is trading near the 52 week low, it also is a good candidate for a rebound in January.

Here are some key points for CODI: Current share price: $12.34 The 52 week range is $11.21 to $18.58 Earnings estimates for 2011: $1.80 per share Earnings estimates for 2012: $1.89 per share Annual dividend: $1.44 per share which yields 12% Number of shares short: about 1.6 million Days to cover: about 7 days, based on average volume

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

Source: 7 Dividend Stocks That Could Surge In January Short Squeeze