Bullish on Dividends: High Yield Dividend Stocks with Short Covering

(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA)

Looking for high dividend ideas with bullish upside potential?

Stocks that pay out dividends can be wise investment decisions, especially if you plan to hold the stock for a long period of time. But using dividends to supplement income requires some thought as to what dividend yield might be suitable, and what levels of risk are acceptable. It’s important to remember dividends are not future guarantees.

Dividend Yield

Dividend yield is the company’s dividend per share divided by price per share (reported in per cent). The higher the dividend yield, the higher the cash returns relative to the share price.

Cash dividends are paid as a percentage of the share value. For example: Let’s say shares of Company XYZ are valued at $100 and pays a 5% dividend. This means you receive $5 per share. If you own 200 shares of Company XYZ, you can expect to receive $1,000.

200 * ($100 * 0.05) = $1000

Naturally, dividend yield is one of the main factors to consider when investors choose dividend paying stocks. But while a high yield may seem preferable, investors must watch out for unsustainable levels.

Yields above 7% may verge on unsustainable. Consider a rapidly growing stock price. If the price escalates from $15 to $50, a 12% dividend may become too much money for a company to pay out and the company is apt to change its yield. But if the yield stayed close to a healthy 2%, there would be less risk of unsustainable payouts or the company adjusting to lower yields.

The higher the share price, the greater the returns. The same is true of the opposite. For that reason investors who appreciate a high yield stock also consider the company’s value and growth potential.

Short Covering

To identify the high yield stocks that show promise of a bullish future we took a look at the recent trading activity of short sellers.

Short selling data is a great resource. Because short selling requires borrowing, a trader must meet several requirements (including background checks) to engage in short selling. Thus short sellers are generally more sophisticated than the average investor.

Because short selling is an investment technique for profiting from a stock’s price decline, increased short selling of a stock indicates a more bearish outlook. Conversely, decreased short selling indicates short sellers are bullish on the company.

We wanted to take a look at some of the names receiving bullish sentiment from short sellers – meaning they believe there is more upside to the names than downside.

The List

To help you get started, we collected short sellers data on 200 high yielding stocks, and identified a list of six high yielding stocks that have seen significant short covering over the last month.

In other words, short sellers have reduced bets that these companies will see declines over the coming months.

Short sellers seem to think the upside potential of these high-yield names outweigh the downside potential. Should any of these names be on your watch list?

analyse These Ideas (Tools Will Open In A New Window)

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List sorted by dividend yield.

1. Overseas Shipholding Group Inc. (OSG): Engages in the ocean transportation of crude oil and petroleum products. Dividend yield at 6.93%. Shares shorted have decreased from 8.67M to 8.12M over the last month, a decrease which represents about 2.37% of the company’s float of 23.25M shares.

2. Getty Realty Corp. (GTY): Operates as a real estate investment trust (REIT) in the United States. Dividend yield at 6.24%. Shares shorted have decreased from 2.62M to 2.12M over the last month, a decrease which represents about 1.87% of the company’s float of 26.72M shares.

3. NutriSystem Inc. (NTRI): Provides weight management products and services primarily in the United States and Canada. Dividend yield at 6.17%. Shares shorted have decreased from 5.64M to 4.93M over the last month, a decrease which represents about 2.66% of the company’s float of 26.74M shares.

4. Regal Entertainment Group (RGC): Operates a theatre circuit in the United States. Dividend yield at 5.71%. Shares shorted have decreased from 21.34M to 20.22M over the last month, a decrease which represents about 1.32% of the company’s float of 85.08M shares.

5. Equity One Inc. (EQY): Engages in the ownership, management, acquisition, renovation, and development of neighbourhood and community shopping centres in the United States. Dividend yield at 5.15%. Shares shorted have decreased from 6.20M to 5.33M over the last month, a decrease which represents about 1.52% of the company’s float of 57.29M shares.

6. Federated Investors, Inc. (FII): Provides its services to individuals, including high net worth individuals, banking or thrift institutions, investment companies, pension and profit sharing plans, pooled investment vehicles, charitable organisations, state or municipal government entities, and registered investment advisors. Dividend yield at 5.08%. Shares shorted have decreased from 9.09M to 6.74M over the last month, a decrease which represents about 2.54% of the company’s float of 92.38M shares.

Interactive Chart: Press Play to see how analyst ratings have changed for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.

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