BALTIMORE (Stockpickr) -- Investors love dividends for obvious reasons. When a stock is paying out cash each quarter, it's a whole lot easier to swallow the market's ebb and flow, and when companies dole out dollars in a tough market, high-yielding dividend stocks are even sweeter. But payouts to investors don't cure all wounds. In fact, quite a few big dividend-payers sport staggering short interest ratios.
When that happens, it's time to sort through the pile to find the best potential short-squeeze opportunities.
A short squeeze is the buying frenzy that ensues when a heavily shorted stock starts to look attractive again to investors, causing share price to skyrocket. One of the best indicators of just how high a short-squeezed stock could go is the short interest ratio, which estimates the number of days it would take for short-sellers to cover their positions. The higher the short ratio, the higher the potential profits when the shorts get squeezed. And what could be better than capital appreciation on top of dividend income?
When it comes to betting on highly shorted dividend stocks, the most important thing to consider is whether or not a stock can sustain its dividend payouts. Because dividend yields play a big part in valuing income stocks, a sudden cut can cause a huge fall in share price. That's why financial statement health is so crucial in picking out the right investments.
Here's a look at
Entertainment Properties Trust
is having a strong year in 2010, with shares up 19.2% year to date. Much of that rally has been thanks to the trust's return to profitability in the fourth quarter of 2009. EPR owns and leases 95 theater properties, nine retail centers, and a number of other properties spread throughout the U.S. and Canada. The trust currently pays a 6.3% dividend yield and a short ratio of 12.63.
Despite significant real estate devaluation in North America, EPR has managed to maintain its profitability thanks in large part to the nature of its properties. With most of its leases performing, EPR was one degree separated from the economic fallout of 2008. While the company faced significant one-time charges at the end of fiscal 2009, the stock has bounced back to double-digit margins and a plush cash safety net in the bank.
One of the firms that's taken advantage of EPR's operational performance is
, which also owns stakes in
is a Pennsylvania-based regional bank company that owns the First National Bank of Pennsylvania. As a group, regional banks have managed to come out of the economic crisis of 2008 more unscathed than most analysts expected, the result of more carefully allocated loan portfolios and more stringent lending criteria than the big banks. With a short interest ratio of 15.57 and a dividend yield of 5.52, FNB could make for an interesting short squeeze opportunity right now.
While the credit crunch took some of the wind out of FNB's sails, the bank was able to maintain its profitability through the crisis, delivering $35.6 million in earnings and 96 cents per share in dividends for 2008. Now that credit markets are largely unseized and lending is resuming across the country, expect FNB to slide back into double-digit margins.
Earnings are coming up this month for FNB and could be just the catalyst the stock needs to see higher ground.
While oil and gold are more apt to pop into investors' minds when asked to name a commodity, timberland is a commodity nonetheless. And one of the biggest players in the field is
Plum Creek Timber
, a timber REIT that pays out a 4.2% dividend yield right now.
While timber demand has been soft in the housing slowdown of the past couple years, Plum Creek responded intelligently by warehousing their stores of timber in order to keep prices at reasonable levels. Now that new building projects are starting to gain speed, the company's 7.3 million acres of timberland could see some additional activity in 2010 -- more than enough to shake out some of the short sellers that have pushed PCL's short ratio to 12.11.
Plum Creek has substantial financial resources at its disposal and a considerable track record of profitability, two factors that have attracted institutional investors like the
(JSVAX), a three-star rated mutual fund that also owns shares of
Bank of America
For the rest of this week's short-squeeze opportunities, including
, check out the
And to find short-squeeze plays of your own, be sure to check out the
community for insights and investment ideas.
-- Written by Jonas Elmerraji in Baltimore.
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Jonas Elmerraji is the editor and portfolio manager of the
Rhino Stock Report
, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including
, and has been featured in
Investor's Business Daily