Short sellers have continued to by and large increase their short-sale bets against the quality high-yield dividend stocks. The price gains must lead short sellers to believe that the yields are getting too low and that the 2013 rally is getting long in the tooth. We tracked the short interest changes from the February 28 settlement date versus the February 15 settlement date, and we added color if applicable. You will notice some slight drops in select short selling activity, but the growth in the bets against these quality dividend stocks was much larger.
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 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 slight nominal gain to 19.5 million shares from 18.979 million shares short, but the days to cover fell to 1.70 from 2.35 days. Altria’s dividend yield is 5.2%.
American Electric Power Co. Inc. (NYSE: AEP) saw a huge gain in the short interest of more than 50%, just before its shares broke out to the upside. AEP’s short interest rose to 4.78 million shares, versus 3.11 million shares short. AEP yields about 4.0% now, since its shares have broken out to the upside.
Annaly Capital Management Inc. (NYSE: NLY) saw a small gain in the short interest to 26.81 million shares from 26.502 million shares in mid-February. This is still much lower than the 35 million to 41 million shares short in December and January. Annaly has a current yield of about 11.8%, and its shares are in the middle of the 52-week range.
AT&T Inc. (NYSE: T) saw a very large boost in the short interest, and this was the highest number of shares sold short in a year. Its shares short rose more than 13% to 90.539 million shares, versus 79.839 million two weeks earlier. AT&T still outyields the other DJIA stocks. but its dividend now screens out at 4.9% versus a prior 5.1%, since its shares are close to the highest share price since last fall.
Duke Energy Corp. (NYSE: DUK) saw its short interest fall to 8.6 million shares from 9.44 million shares two weeks earlier; Duke has a dividend yield of about 4.4%.
General Electric Co. (NYSE: GE) is the highest yielding of the large conglomerate stocks, and it pays out 3.2% to its shareholders, even with shares within 1% of a multiyear high. Its short interest ticked up by only almost 1.3 million shares to 79.228 million shares short at the end of February. While a small gain nominally, that is the highest short interest going back to last August.
Kimberly-Clark Corp. (NYSE: KMB) still leads the dividend charge against rival consumer products players with a 3.4% dividend yield, now that it just paid out a higher rate again. Its short interest ticked up to 9.4 million shares at the end of February, versus 9.154 million shares two weeks earlier. That is the highest short interest since last July.
Kinder Morgan Energy Partners L.P. (NYSE: KMP) saw a huge drop in is short interest to 2.65 million shares short at the end of the month, versus 3.829 million shares just two weeks earlier. This is the second-lowest reading of the past year and the lowest reading since last summer. Its distribution rate, a yield-equivalent (before tax implications), is still listed as 6.0%.
Merck & Co. Inc. (NYSE: MRK) saw a large gain in the short interest to 27.79 million shares short, versus 22.136 million two weeks earlier. That is the highest reading since last August. Merck’s dividend yield is right at 4.0%.
Procter & Gamble Co. (NYSE: PG) saw its short interest tick up marginally to 25.142 million shares short, versus 24.735 million just two weeks earlier. The gain seems very small and not worth noting, at least until you realize that this is now the highest short interest over the past year for the second report in a row. P&G’s dividend is currently about 2.9%, as its shares are within 1% of a 52-week high.
Reynolds American Inc. (NYSE: RAI) saw its short interest tick up to 9.851 million shares, versus 9.544 million shares short two weeks earlier. This reading has remained with a 9-million handle since November. Reynolds yields about 5.4%.
Verizon Communications Inc. (NYSE: VZ) mirrored AT&T with a gain, but this gain was even higher nominally and in percentages. The telecom’s short interest was up 30% to 61.2 million shares at the end of February, versus 47.045 million shares short in mid-February. The telecom giant yields about 4.3%, now that shares are getting closer to 52-week highs.
Jon C. Ogg