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Short Sellers Made Big Changes in High-Yield Dividend Stocks

Jon C. Ogg

We have now seen the short interest reports from the October 31 settlement date and have compared them to the October 15 settlement date. This is important because it reflects the opinions and bets against key defensive and high-yield stocks after the resolution in Washington, D.C., rather than during it.

The top dividend stocks we tracking the short interest in are: Altria Group Inc. (MO), AT&T Inc. (NYSE:T), General Electric Co. (GE), Kimberly-Clark Corp. (KMB), Merck & Co. Inc. (MRK), Pfizer Inc. (PFE), Procter & Gamble Co. (PG) and Verizon Communications Inc. (VZ).

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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.

Altria Group Inc. (MO) saw a gain after seeing a prior drop. The new short interest was 14.28 million shares, up from 13.4 million shares in mid-October. We have noticed that this short interest is still way down from the peak earlier in 2013. Altria's yield is back down to about 5.1% since the stock is close to a 52-week high again.

AT&T Inc. (NYSE:T) saw only a tiny drop to 125.6 million shares in the short interest at the end of October, versus 127.09 million shares short in mid-October. The last report was a 2013 high in AT&T's short interest, so keep in mind that short sellers are betting against it, and that was before the Vodafone buyout rumors started making the rounds. AT&T's dividend is 5.1%, the highest yield of all 30 DJIA stocks.

General Electric Co. (GE) shares keep hitting new post-recession highs while other conglomerates keep hitting new all-time highs. GE's short interest also ticked up to 64.76 million shares at the end of October, versus 63.89 million in mid-October. GE remains king of the conglomerates when it comes to dividend payments, and that yield is now down to 2.9% since its shares keep rising. We do expect a dividend hike announcement from GE in the coming weeks.

Kimberly-Clark Corp. (KMB) saw only a minor drop in the short interest to 9.41 million shares at the end of October. The mid-October short interest was 9.74 million shares. The short interest remains elevated, but it has yet to go over 10 million shares in 2013. Its yield is about 3.0% now that shares are well over $100.

Big Pharma short changes: Merck & Co. Inc. (MRK) saw its short interest drop to 29.241 million shares, a drop of more than 10% from the 32.93 million shares in mid-October's short interest report. Pfizer Inc. (PFE) hardly changed at all in the bets by short sellers: 57.38 million shares on October 31 versus 57.69 million in mid-October. Merck has a yield of almost 3.8%, versus Pfizer's yield of 3.1%.

Procter & Gamble Co. (PG) saw a very large gain of 17% in its short interest. This count rose to 23.39 million shares short at the end of October, versus 19.99 million shares in the mid-October short interest. Be advised that this marks the highest short interest reading since April. P&G's dividend yield is 2.9% now that shares are back to within $1 or so of a high.

Verizon Communications Inc. (VZ) also saw a huge jump in the short interest. This report was almost 70.3 million shares short at the end of October, versus almost 63.4 million shares short in mid-October. Perhaps this is tied to bond hedging strategies after the huge debt offering, or perhaps it is just raw short selling. That is a gain of more than 10% in the short interest and represents a high of 2013. Verizon's dividend yield is currently much lower than AT&T's at 4.2%.

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