Short Sellers Raise Bets Against High-Yield Dividend Stocks (MO, AEP, NLY, T, DUK, KMB, KMP, MRK, PG, RAI, VZ)

Investing

Published: February 28, 2013 10:05 am

Last Updated: February 28, 2013 10:07 am

Short sellers have increased their bets by and large against our universe of go-to quality dividend stocks. We tracked the short interest changes from the February 15 settlement date, versus the January 31 settlement date, and we added color if applicable.

The top dividend stocks we are tracking the short interest in are as follows: Altria Group Inc. (NYSE: MO), American Electric Power Co. Inc. (NYSE: AEP), Annaly Capital Management Inc. (NYSE: NLY), AT&T Inc. (NYSE: T), Duke Energy Corp. (NYSE: DUK), Kimberly-Clark Corp. (NYSE: KMB), Kinder Morgan Energy Partners L.P. (NYSE: KMP), Merck & Co. Inc. (NYSE: MRK), Procter & Gamble Co. (NYSE: PG), Reynolds American Inc. (NYSE: RAI) and Verizon Communications Inc. (NYSE: VZ).

As a reminder, it takes a lot more conviction to short a stock that has a very high dividend. On top of having to pay a broker loan-call rate to borrow the stock, the dividend payouts and the ex-dates play into the equation as well.

Altria Group Inc. (NYSE: MO) saw a large gain to 18.97 million shares as of Feb. 15, versus 14.29 million shares on Jan. 31, but investors will want to know that this is still only half of the short interest compared to mid-December. Its dividend yield is 5.1%.

American Electric Power Co. Inc. (NYSE: AEP) is down to a one-year low on its short interest, at only 3.11 million shares. It was 3.68 million shares at the end of January, and this is less than half of the short interest back in August. AEP now yields about 4.1%, since its stock has risen handily.

Annaly Capital Management Inc. (NYSE: NLY) is the king of mortgage REITs and has a very high dividend that deters short sellers from getting too aggressive. The short interest fell to 26.5 million shares as of Feb. 15, versus 41.27 million shares at the end of January. That is more than a 35% drop in its short interest. Annaly has a current yield of about 11.9%.

AT&T Inc. (NYSE: T) saw another gain to more than 79.8 million shares short as of Feb. 15, versus 67.98 million shares short at the end of January. That is gain of more than 17% and represents the second highest short interest over the past year. AT&T now yields 5.1%.

Duke Energy Corp. (NYSE: DUK) was barely changed in short selling activity. It fell to 9.44 million shares, versus 9.64 million at the end of January. You might want to know that while the gain is small, this is actually the highest short interest going back to last summer, when so many arbitrage funds were short the stock. Its yield is about 4.4%.

Kimberly-Clark Corp. (NYSE: KMB) has the highest dividend of the consumer products giants, and it is one in which short sellers keep feeling pain as this highly defensive stock keeps hitting new highs. It also just raised its dividend. The short interest rose to 9.15 million shares as of Feb. 15, versus 9.13 million shares short at the end of January. The gain in short selling activity was small, but that is actually the highest reading going back to last summer.

Kinder Morgan Energy Partners L.P. (NYSE: KMP) saw a rather large gain of almost 13% in the short interest to 2.829 million shares as of mid-February, versus 3.397 million units as of the end of January. Its distribution rate, a yield-equivalent (before tax implications), is listed as 6.0%.

Merck & Co. Inc. (NYSE: MRK) saw only a small gain in the short interest to 22.136 million shares as of Feb. 15, versus 21.243 million shares short as of Jan. 31. Merck’s dividend yield is now close to 4.1%.

Procter & Gamble Co. (NYSE: PG) saw a very large jump in the short interest, and it keeps challenging 52-week highs as well. The short interest rose to 24.735 million shares as of Feb. 15, versus 19.351 million shares short as of Jan. 31. P&G’s dividend is about 3.0%.

Reynolds American Inc. (NYSE: RAI) may be on the decline in the short seller activity after what had been a prior wave of increased short selling before stalling of late. Its short interest as of Feb. 15 was 9.544 million shares, versus 9.813 million as of Jan. 31. This tobacco player yields about 5.4%.

Verizon Communications Inc. (NYSE: VZ) saw an uptick in the short interest, rising to 47.045 million shares short as of Feb. 15, versus 45.32 million shares short as of Jan. 31. The telecom giant yields about 4.5%.

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