We recently compiled a list of the 8 Dividend Giants with Lowest Short Interest in 2024. In this article, we are going to take a look at where Dow Inc. (NYSE:DOW) stands against the other dividend giants with lowest short interest.
Short sellers have faced significant challenges over the past few years, as the market’s ongoing rally has not been favorable to them, with 2023 being no exception. According to S3 Partners Research, investors betting against US and Canadian stocks incurred paper losses totaling $194.9 billion last year due to a sharp market rally. The report highlighted that 2023 was a particularly tough year for short sellers, with tech stocks soaring 43.4% and the broader market rising 24.2%. Despite the difficulties, some investors managed to profit from short positions, particularly during the banking crisis in March last year.
Short selling is a common and regulated investment strategy that investors use when they believe a stock is overpriced based on their research. It enhances market liquidity, contributes to market stability, and helps both investors and companies manage risk in their portfolios.
Short selling isn’t just used for excitement; it plays a key role in improving price accuracy, ensuring more efficient capital allocation, preventing financial bubbles, and revealing fraud. According to a report by the Washington-based Managed Funds Association, short selling signaled that the US housing market was overvalued in 2008, helping to limit the broader impact of the financial crisis. The report also mentioned that over the past two decades, short selling has exposed numerous corporate frauds, including cases like Enron, Tyco, Worldcom, MBIA, Insys Therapeutics, Valeant, and Wirecard, among others.
In August, short sellers focused their attention on airlines due to increasing concerns about the sector, which has been experiencing declines in earnings and rising costs, according to a report from data and technology firm Hazeltree. Some investors and analysts believe that the airline industry, which is cyclical and closely linked to macroeconomic conditions, may be heading for another downturn as travel demand normalizes after COVID-19 and consumers become more sensitive to pricing. The Hazeltree report also noted that traders made bets against banks during the same month.
Short sellers have clearly identified opportunities in neglected or struggling segments of the market. Last year, the instability among regional banks drew the attention of short sellers, who examined these lenders’ balance sheets for weaknesses related to rising interest rates and took positions against their stocks. In 2023, while the overall market was on an upward trend, this sector proved to be particularly lucrative for these traders. The volatility experienced by regional bank stocks earlier this year once again led to significant paper profits for short sellers, mirroring the gains achieved during last year’s disruptions in the sector. As a result, analysts are reassessing their view of short sellers. Carson Block, founder of Muddy Waters Research, believes that markets are increasingly reliant on short sellers. However, he pointed out that ongoing stock rallies and emerging regulatory hurdles are posing challenges for bearish investors, making it harder for them to secure capital. With this, we will take a look at some dividend giants with the lowest short interest.
Our Methodology:
To create this list, we used the Finviz stock screener to find dividend stocks with a market capitalization of at least $10 billion and dividend yields exceeding 3% as of September 22. We then narrowed down the selection to stocks with less than 3% of their float sold short, using data from Yahoo Finance recorded on September 22. The stocks are arranged in descending order based on their short interest rates.
We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A technician operating state of the art machines manufacturing specialized packaging materials.
Dow Inc. (NYSE:DOW)
Short % of Float as of September 22: 1.83%
Dow Inc. (NYSE:DOW) is an American chemicals company that mainly operates in the material science industry. The company is involved in the manufacturing and marketing of a wide range of chemical, plastic, and agricultural products.
In the second quarter of 2024, Dow Inc. (NYSE:DOW) reported revenue of $11 billion, which fell by 4.4% from the same period last year. Its volumes grew by 1% on a YoY basis but a sluggish global economy has led to lower prices. The global macroeconomic recovery has been progressing at a slower pace than anticipated. The company continues to focus on managing working capital, cutting costs, and aligning its operating rates with current demand. Moreover, its commitment to innovation with customers was evident during the quarter, as the company successfully tapped into increasing demand in sectors like packaging, electronics, and home and personal care.
Dow Inc. (NYSE:DOW)’s cash position makes it one of the most reliable options among income investors. In the most recent quarter, the company generated $832 million in operating cash flow and its free cash flow came in at $109 million. During the quarter, it returned $691 million to shareholders through dividends and share repurchases. Its strong cash generation has allowed the company to pay uninterrupted dividends to shareholders since 1912. Currently, it pays a quarterly dividend of $0.70 per share and has a dividend yield of 5.38%, as of September 22. With 1.83% of its float sold short, DOW is one of the best dividend giants on our list.
As of the close of Q2 2024, 32 hedge funds tracked by Insider Monkey owned stakes in Dow Inc. (NYSE:DOW), compared with 35 in the previous quarter. These stakes are valued at over $1.2 billion. With 18.8 million shares, Pzena Investment Management was the company’s leading stakeholder in Q2.
Overall DOW ranks 6th on our list of dividend giants with lowest short interest in 2024. While we acknowledge the potential DOW as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DOW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.