Looking for high dividend ideas with bullish upside potential?
Stocks that pay out dividends can be wise investment decisions, especially if you plan to hold the stock for a long period of time. But using dividends to supplement income requires some thought as to what dividend yield might be suitable, and what levels of risk are acceptable. It's important to remember dividends are not future guarantees.
Dividend yield is the company's dividend per share divided by price per share (reported in percent). The higher the dividend yield, the higher the cash returns relative to the share price.
Cash dividends are paid as a percentage of the share value. For example: Let's say shares of Company XYZ are valued at $100 and pays a 5% dividend. This means you receive $5 per share. If you own 200 shares of Company XYZ, you can expect to receive $1,000.
200 * ($100 * 0.05) = $1000
Naturally, dividend yield is one of the main factors to consider when investors choose dividend paying stocks. But while a high yield may seem preferable, investors must watch out for unsustainable levels.
Yields above 7% may verge on unsustainable. Consider a rapidly growing stock price. If the price escalates from $15 to $50, a 12% dividend may become too much money for a company to pay out, and the company is apt to change its yield. But if the yield stayed close to a healthy 2%, there would be less risk of unsustainable payouts or the company adjusting to lower yields.
The higher the share price, the greater the returns. The same is true of the opposite. For that reason investors who appreciate a high yield stock also consider the company's value and growth potential.
To identify the high yield stocks that show promise of a bullish future, we took a look at the recent trading activity of short-sellers.
Short-selling data is a great resource. Because short selling requires borrowing, a trader must meet several requirements (including background checks) to engage in short selling. Thus short-sellers are generally more sophisticated than the average investor.
Because short-selling is an investment technique for profiting from a stock's price decline, increased short-selling of a stock indicates a more bearish outlook. Conversely, decreased short selling indicates short-sellers are bullish on the company.
We wanted to take a look at some of the names receiving bullish sentiment from short-sellers -- meaning they believe there is more upside to the names than downside.
To help you get started, we collected short-sellers' data on 200 high yielding stocks and identified a list of six high yielding stocks that have seen significant short covering over the last month.
In other words, short-sellers have reduced bets that these companies will see declines over the coming months.
Short-sellers seem to think the upside potential of these high-yield names outweigh the downside potential. Should any of these names be on your watch list?
List sorted by dividend yield. (Click here to access free, interactive tools to analyze these ideas.)
1. Overseas Shipholding Group
2. Getty Realty
4. Regal Entertainment Group
5. Equity One
6. Federated Investors
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Short data sourced from Yahoo! Finance.