40 Big Dividends with High Short Interest, Consider These Two

Considering interest rates are still artificially low, many income-hungry investors are attracted to high-dividend stocks. However, a high-dividend yield can be a sign of distress. Another possible sign of distress is a high level of short interest (i.e. investors betting against a stock). This article highlights 40 high-dividend stocks with high short interest, and then handpicks two of the companies and explains why they actually present very attractive, high-income, contrarian opportunities worth considering.

The List:

For starters, we ran a screen of stocks with dividend yields of at least 5% and short interest of at least 10%. 


Before getting into the two opportunities on this list that we consider attractive, first we offer a few general observations...

1. Retail apparel stores are unloved...

As retailers move online, and shopping malls face challenges, retail apparel stores face challenges. For example, these companies in the category made the list: Buckle (BKE), Stage Stores (SSI), and Abercrombie & Fitch (ANF).

2. Smaller Telecoms are challenged...

If you are a telecom, and you’re not named AT&T or Verizon, investors do NOT love you. For example, these companies in the category made the list: Frontier Communications (FTR) CenturyLink (CTL), and Windstream (WIN).

3. Healthcare REITs are Doubly Unloved...

If you are a healthcare REIT, you’re unloved because of the high uncertainty in the healthcare space (i.e to what extent will the Affordable Care Act be “repealed and replaced?”). Secondly, REITs are unloved because investors fear interest rates will rise and place significant pressure on these highly levered real estate businesses that rely on borrowing to exist. For example, these companies in the category made the list: Medical Properties Trust (MPW), Omega hHealthcare Investors (OHI), Sabra Health Care REIT (SBRA), and Care Capital Propertes (CCP).

4. Hotel REITs are Unloved...

Also, hotel REITs made the list. This group is challenged because of the same interest rates challenges facing the healthcare REITs we mentioned above. However, hotel REITs are different in the sense that they have much less long-term visibility. Unlike healthcare REITs with longer term agreements, hotel REITs are higher beta companies as occupancy rates vary more with the most current market conditions. For example, these companies in the category made the list: Pebblebrook Hotel (PEB), LaSallet Hotel Properties (LHO), and Host Hotels & Resorts (HST).

5. Replaced by New Technology...

And finally, if you’re being replaced by a new technology, you’re unloved too. For example, Seagate Technology’s (SEA) primary product is hard drives. Hard drives are being replace by cloud services such as Amazon Web Services. And Medallion Financial (MFIN) is engaged in originating, acquiring and servicing loans that finance taxicab medallions. Taxicabs are facing intense competition from ride sharing services such as Uber and Lyft.

The Two Opportunities We Like...

However, if you are a contrarian, income-focused investor, you may be interested in a couple attractive opportunities on this list.

1. Frontier Communications (FTR)

As we mentioned above, Frontier is one of those unloved telecom stocks. However, if you like big-yield and low risk, Frontier’s bonds are far more attractive than the stock. You can read our full write-up on why Frontier bonds are attractive here.

2. Omega Healthcare Investors (OHI)

We believe the fears related to Omega Healthcare Investors (OHI) are particularly overblown. Specifically, OHI is very beat up because REITs in general are beat up (investors are overly afraid of interest rate hikes) and because it is involved with skilled nursing facilities (there is high uncertainly regarding government reimbursement rates as they relate to the Affordable Care Act and the new administration). We believe the markets has overreacted to the challenges facing Omega (it still generates a lot of income), and new laws are not going to put an end to skilled nursing facilities because the demographics are just too powerfully in favor of Omega. We own Omega in our top-performing Blue Harbinger Income Equity portfolio, and you can read more about it here.

And if you’d like to view all of our holdings (and all of our members-only reports) consider a subscription to Blue Harbinger's Top-Performing Research Service…

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