Key Short Interest Changes in Defensive High-Yield Dividend Stocks

The interesting point about the defensive high-yield dividends is that something is happening that is unequal in trends. The changes look a bit all over the place, implying that the short sellers are looking at individual issues rather than attacking sectors. The changes were mild in some and massive in others.

24/7 Wall St. would remind readers that short selling a high-dividend stock takes much more conviction and courage than short selling growth stocks. On top of being short a stock and having to pay borrowing costs, those short sellers are effectively assuming the liability of paying that dividend out on top of just the cost to borrow a stock.

Altria Group Inc. (NYSE: MO) had seen a growing short interest, but this reversed itself in June and continued to drop in July. The July 15 short interest was 20,072,105 shares, versus a short interest of 20,873,376 shares on June 30. Altria’s yield is now about 4.5%, and the stock is down $2 from a 52-week and all-time high.

AT&T Inc. (NYSE: T) previously had only a small uptick of 0.5% in its short interest in June, but the short interest rose 4.4% to 199,960,170 shares on July 15, versus 191,553,699 shares as of June 30. AT&T’s earnings were unimpressive, and its dividend yield is 5.2%. It trades at only about 13.5 times this year’s expected earnings.

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General Electric Co. (NYSE: GE) had previously seen a small drop in the short interest, but that short interest plummeted in July, down almost 15% to 58,090,804 shares as of July 15 from 68,273,172 shares short as of June 30. GE’s common stock dividend yield is 3.4% now that shares have pulled back to under $26 from a recent peak of $28.09.

Kimberly-Clark Corp. (NYSE: KMB) had been seeing gains in the short interest, but the mid-July report was too narrow to even bother covering in much detail — 6,406,568 shares short as of July 15 versus 6,538,475 shares short as of June 30. The consumer products giant’s dividend is back up to 3.1%, now that its stock has pulled back to the $109 area after an unimpressive earnings report.

Merck & Co. Inc. (NYSE: MRK) had previously seen a rise in its short interest, but the latest report showed a 0.9% drop, to 33,982,755 shares short as of July 15, versus 34,275,172 shares short as of June 30. Merck’s dividend yield is right at 3.0%, and it is still valued at almost 17 times expected 2014 earnings with no underlying growth story.

Pfizer Inc. (NYSE: PFE) had previously seen a very large jump higher (almost 16%) in the short interest during June, but this reversed course in July. The July 15 short interest was 60,916,961 shares short, down more than 7% from the 65,672,029 shares short as of June 30. Pfizer shares are now back up above $30, and the stock looks cheap compared to Merck, now at only about 13.5 times expected 2014 earnings, with a 3.4% yield.

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Procter & Gamble Co. (NYSE: PG) had been volatile in its short interest, but the mid-July short interest was down 3.2% to 25,763,514 shares on July 15 from 26,620,618 shares short on June 30. P&G’s dividend yield is 3.2%, and the stock trades at an expensive 18.3 times a blended earnings estimate of 2014/2015 (June fiscal year-end), despite being just under the $80 handle.

Verizon Communications Inc. (NYSE: VZ) has been dull in its short interest trends, and the mid-July report was a continuation of that, which only diminished part of the gain in June. Verizon’s short interest was down 1.5% to 37,276,496 shares as of July 15, versus 37,854,350 shares short as of June 30. Verizon’s dividend yield is currently much lower than AT&T’s, at just under 4.2% now that its stock is above $51. Verizon also trades with a slightly higher earnings multiple of 14.5 times expected 2014 earnings.