Short Sellers Abandoning Bets Against High-Yield Defensive Dividend Stocks

Investing

Published: October 25, 2013 8:50 am

Last Updated: October 25, 2013 8:53 am

We have seen the short interest reports for the October 15 settlement date. It turns out that short sellers have been getting out of the way of the bull market after previously increasing their bets against these stocks. Some of the drops were large, while the short interest reports that grew seemed very small.

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), General Electric Co. (NYSE: GE), 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 we have said before, it takes much more conviction to short sell 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 have to be paid, and the ex-dividend dates play into the equation as well. We compared the short interest settlement dates of September 30 versus October 15 and gave added color compared to the recent past on each.

Altria Group Inc. (NYSE: MO) saw a big drop down to 13.404 million shares from 15.558 million shares short. This was the second big drop in a row and is only half the short interest from the peak earlier in 2013. Altria’s yield is back up to about 5.4%.

American Electric Power Co. Inc. (NYSE: AEP) saw a big drop down to 4.931 million shares short in mid-October, versus 5.908 million shares short as of the end of September. AEP yields about 4.4%.

Annaly Capital Management Inc. (NYSE: NLY) has seen its shares bounce from its lows, and the short sellers have handily gotten out of the way. The short interest was 38.468 million shares, down from 49.543 million in the prior report. Annaly still screens as a double-digit yield of about 11.8%, although its dividend has been in decline.

AT&T Inc. (NYSE: T) saw only a tiny gain to 127.098 million shares, versus 126.018 million shares short. However, this is a record high for at least the past year. AT&T’s dividend is 5.1%, the highest yield of all 30 Dow Jones Industrial Average stocks.

Duke Energy Corp. (NYSE: DUK) saw a handy drop in the short interest to 9.832 million shares, versus a prior peak of 10.663 million shares short. Duke has a dividend yield of about 4.5%.

General Electric Co. (NYSE: GE) is still the highest yielding conglomerate, and the short sellers decided they better get out of the way of the earnings report. The October 15 short interest was 63.890 million shares, versus 68.699 million shares short on September 30. GE shares come with a dividend yield of 3%, and shares are within 3% of multiyear highs.

Kimberly-Clark Corp. (NYSE: KMB) saw a minor drop in short selling, down to 9.740 million shares short from 9.845 million shares in the prior report. Its yield is about 3.3%.

Kinder Morgan Energy Partners L.P. (NYSE: KMP) saw only a small gain in the short interest, up to 3.425 million units versus 3.341 million units in the previous report. Still, this is the highest short interest since April. This is a “distribution” rather than a yield, but the yield equivalent is 6.6%.

Big Pharma short changes: Merck & Co. Inc. (NYSE: MRK) saw its short interest drop to 32.936 million shares, versus 34.192 million shares. Pfizer Inc. (NYSE: PFE) also saw a drop, down to 57.690 million shares from 58.612 million shares short. Merck has a yield of almost 3.7%, versus Pfizer’s yield of 3.1%.

Procter & Gamble Co. (NYSE: PG) saw a small gain to 19.993 million shares short on October 15, versus 19.766 million shares short on September 30. This short interest remains less than the peak earlier this year. P&G’s dividend yield is 3%.

Reynolds American Inc. (NYSE: RAI) saw a small gain in its short interest, up to 7.773 million shares from 7.601 million. Reynolds has a yield of 5.0%.

Verizon Communications Inc. (NYSE: VZ) saw a minimal decline in the short interest to 63.386 million shares, versus 63.415 million shares short. Verizon’s dividend yield is currently much lower than AT&T’s at 4.2%.

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