Dividends are like kryptonite to short sellers. That's why it's interesting that shorts are barricading themselves in shares of Realty Income (O), the real estate investment trust known to its investors as "the monthly dividend company." At last count, Realty Income has a short interest ratio of 15.97.
In many ways, Realty Income is a prototypical REIT. It may seem surprising to some, but REITs actually act a lot more like fixed income instruments than real estate investments. That's because the firm leases properties to tenants using long-term triple net leases, which give the firm consistent, predictable income growth without needing to worry about variables such as maintenance, property taxes or insurance -- tenants are responsible for those costs. Realty Income's mature portfolio of 3,800 well located mostly single-tenant retail properties gives it some downside protection against economic hiccups.Right now, Realty Income pays out a 5.4% dividend yield. That's significant from a shorting standpoint because dividends are a direct way that firms can impact the value of their shares. Even in a flat market, dividends and margin interest can eat away at short returns -- and prime the pump for a squeeze.
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