Short Sellers Focus On Dividend Stocks

They’re frequently called everything from spoilsports to saboteurs. But short sellers–who borrow shares of stock to sell with hopes of buying back at a lower price–do provide valuable liquidity to markets, as well as a healthy counterpoint to the typically rosy claims of management. Utility stocks aren’t historically known for high levels of short selling. That’s in large part because of the steady nature of their essential services businesses, but also because short sellers must make good on dividends as long as they hold a stock short.

That prospective cash drain has also historically been a major disincentive to shorting other high-yielding stocks. In recent weeks, however, short interest for a wide range of dividend payers has risen, including in sectors not known for volatility. Just as buyers of stock hope share prices will rise, short sellers are betting prices will drop. And to be sure, there’s some logic to these elevated short levels now.

Source: Investing Daily

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