4 Dividend Stocks Investors Are Shorting Massively

While the equity market rally continues this year, several dividend-paying stocks are seeing heavy investor short selling. There are several reasons to sell stocks short. Some investors are pessimistic about the future outlook of the shorted companies, others use short positions to hedge their long exposures, and some engage in merger arbitrage. In general, investors are using this trading activity to optimize their portfolios and maximize returns.

Currently, investors are shorting a number of dividend payers with large dividend yields, assuming, in some cases, that dividend payouts may be unsustainable. At present, investors are heavily shorting American Greetings Corp. (NYSE:AM), GameStop Corp. (NYSE:GME), Safeway Inc. (NYSE:SWY), and Pitney Bowes (NYSE:PBI). When analyzing the shorted stocks, the attention is paid to short interest as percentage of the float, the latter representing the total number of shares available for trading. Here is a closer look at the noted four stocks, with a particular attention paid to the sustainability of their dividend payouts.

dividend Stocks


American Greetings Corp. (NYSE:AM) designs, manufactures, and sells greeting cards. Currently, the stock’s short interest as percentage of float stands at 45.1%. Over the past five years, this company saw its EPS grow at an average annual rate of 16.4%, while its dividends increased at an average rate of 9.6% per year over the same period. At present, the stock pays a dividend yield of 3.5% on a payout ratio of 167% of trailing earnings and 53% of last year’s free cash flow. The company’s peer CSS Industries Inc. (CSS) pays a dividend yield of 3.0% on a payout ratio of only 26%. Rival Hallmark Cards, Inc. is closely held. American Greetings is a cash cow, although it has seen its revenues drop over the past decade. In general, the company’s greeting cards business is in a secular decline. Recently, the company’s CEO and members of the founding family made a takeover bid for the company’s shares at a price of $17.18 per share, below the company’s book value. The stock is currently trading at $17.08 per share. With claims about management’s breaching of fiduciary duty, a number of law offices has initiated or plans to initiate legal action. As regards its valuation, on a forward P/E basis, American Greetings is trading at a major discount relative to its industry. Fund manager Joel Greenblatt purchased a minor stake in the company in the second quarter.

GameStop Corp. (NYSE:GME) is the world’s biggest retailer of video game hardware and software. Short interest as percentage of the float for this company hovers around 37.2%. The company’s EPS grew at an average rate of 19.3% per year over the past five years, while analysts forecast that the company’s EPS will increase at an average annual rate of 8.9% per year for the next five years. The forecast long-term EPS growth has been revised downward over the past two months. Recently, GameStop Corp. boosted its quarterly dividend by 66.7% to $0.25 a share. Currently, the stock is yielding 4.4% on a payout ratio of 42%. Its main competitor Best Buy Co. Inc. (NYSE:BBY) pays a dividend yield of 3.9%, while rival Amazon (NASDAQ:AMZN) does not pay dividends. GameStop Corp. generates high free cash flow. Over the past five years, its free cash flow grew at an average rate of 13.3% per year. The company has been increasing shareholder value through dividend boost and share buybacks. However, there are some concerns that large buybacks are masking EPS weakness. The video game retail outlook is weak. A research firm NPD Group estimates that game console sale dropped as much as 39% year-over-year in September, while software sales were down 19%. The research group says that “video-game industry sales this year have shrunk as fewer consumers buy packaged titles,” amid a rise in games played on mobile devices. In terms of its valuation, on a forward P/E basis, GameStop Corp. is trading at a deep discount to its respective industry. Among fund managers, value investor Chuck Royce (Royce & Associates) and billionaire Cliff Asness are big fans of the stock.

Safeway Inc. (NYSE:SWY), a food and drug retailer with a market cap of $3.9 billion, is reporting a high short interest as percentage of the float at 31%, an increase compared to a few months back. The company has seen strong revenue and free cash flow growth. Its EPS contracted at an average annual rate of 5% per year over the past five years, while its dividends increased at an average rate of 20.4% per year over the same period. Analysts forecast that the company’s EPS growth will average 9.6% per year for the next five years. The stock currently pays a dividend yield of 4.5% on a payout ratio of 33% of trailing earnings and 27% of last year’s free cash flow. Safeway’s competitor Supervalu (NYSE:SVU) suspended dividend payments this past summer, while rival The Kroger Co. (NYSE:KR) still pays a dividend yield of 2.6%. In its third quarter, the stock reported declining revenues over the year-earlier levels and beat analyst estimates on EPS due to a sharp reduction in its share count. The company has been relying on cash for working capital, which has halved the amount of net free cash in the first 36 weeks of this year compared to the same period of last year. Still, Safeway expects its annual free cash flow to remain unchained relative to the level achieved last year, which makes the company’s dividend surely sustainable. As regards its valuation, on a forward P/E basis, the stock is trading well below its respective peer group. The stock is down 8% over the past 12 months. It is popular with billionaire fund manager Ray Dalio.

Pitney Bowes Inc. (NYSE:PBI) continues to fare as one of the most heavily shorted stocks this year. Its short interest as percentage of the float is 28.1%. This is so despite the company’s status as a dividend aristocrat, which Pitney Bowes has earned raising dividends for the past 25 consecutive years. The company sells mail processing equipment and integrated solutions. Over the past five years, Pitney Bowes EPS shrank at an average annual rate of 7.1%, while its dividends grew at an average rate of 2.7% per year. Analysts forecast that, on average, its EPS will remain flat for the next half decade. Currently, the stock is yielding 11.2% on a payout ratio of 44%. Its competitors Xerox (NYSE:XRX) and Cannon (NYSE:CAJ) are yielding 2.4% and 4.8%, respectively. Despite the company’s stellar dividend history, Pitney Bowes is heavily shorted as investors lack confidence in the long-term sustainability of its business model, given the progress in digital technologies. Still, despite the negative sentiment, Pitney Bowes dividend, albeit currently exceptionally high, appears to be sustainable in the medium term. In terms of valuation, on a forward P/E basis, this stock is trading on par with the electronic office equipment industry. The stock is down nearly 30% over the past year. Tiger cub Philippe Laffont (Coatue Management) owns a stake in the company.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!


The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World


Enter your email:

Delivered by FeedBurner


Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!