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Dividend Yield: Capitalizing on a Short Squeeze

by: Where is the Yield? January 25, 2007 | about stocks: ALD / CORS / DDR / DPL / HE / PII / PRK / RAI / SANYY.PK / TKG    
Where is the Yield?

Where is the Yield?

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Most investors are familiar with the idea of the short squeeze: When a lot of investors sell a stock short, there is the possibility that when they finally cover (all at once), they will drive prices up considerably. The probability of a short squeeze increases when the short ratio (the number of shares short divided by the float) is high.

It gets more interesting when the company sold short pays a dividend. When you short a stock, you have to pay the dividend. If the dividend yield happens to be significant, this becomes a burden on a short position.

To try to capitalize on this predicament, I ran a screen (on the MSN screener) looking for companies with a short ratio of 25 or more, yielding 3% or more, and with a market cap of at least $1 billion. The screen produced the following 10 results:

short dividend screen

Disclosure: Author is Long RAI and CORS, and considering positions in the other stocks produced by the screen.

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