5 Heavily Shorted Dividend Stocks Yielding Up To 21%

These unloved stocks yield between 6.9% and 21.4%. These are big dividends, but not the main reason we are discussing this ignored five today.

Each of these names is so unliked by the Wall Street suits that they have serious upside potential.

How could that be?

These shares are heavily sold short.

Short selling is a way to bet against a stock. To do so, one must borrow the shares and sell them today. In hopes of buying back at a lower price tomorrow.

What happens if the stock goes up tomorrow? And rises the next day? And so on?

Eventually, the short seller may “feel the heat” and buy back the shares. Which turns up the temperature on other shorts in the room—who also buy. And send the stock price on an ironic rally higher.

This is popularly called a short squeeze.

The classic example is the legendary short squeeze back in ’08 that sent shares of Volkswagen AG soaring 82% in a single day. But many newer investors will be more familiar with the wild action around GameStop (GME) and other so-called “meme stocks” a couple years back—their meteoric rises were in part triggered by heavy shorting gone awry.

As contrarian investors, we have no interest in joining these herds of short sellers. We want to run the other way and consider buying stocks that are heavily shorted.

Now consideration is only the first step of our careful approach. We next need to identify where the shorts have it wrong. There is plenty of garbage floating in the stock market today. Much of it is shorted for a reason. It’s the flaws in said reasoning that interests us.

So here we go, five heavily shorted dividends ranging from 6.9% to 21.4%. They have our consideration. Next up is our analysis.

Cracker Barrel Old Country Stores (CBRL)

Dividend Yield: 6.9%

Short Interest (% of Float): 14.4%

Last April, I said investors should sell Cracker Barrel Old Country Stores (CBRL), and here’s hoping you did—CBRL shares have lost a quarter of their value since then. When I took a refreshed look at CBRL in September, I didn’t see any additional reason for optimism; shares are flat since then while the market has climbed by double digits.

Cracker Barrel’s summer declines helped to work off previously high short interest, but the bears piled in again following a big fourth-quarter earnings whiff on revenues that barely budged. Then in late November, CBRL delivered another miss spurred by a 7.1% drop in traffic.

CBRL’s short camp has eased over the past month or so; the remaining shorts could eventually get squeezed out should several initiatives—including cost cutting and a new rewards program—bear fruit.

More worrisome longer-term is that earnings are failing to cover Cracker Barrel’s nearly 7% dividend; right now, Cracker Barrel is paying out roughly 110% of this year’s estimated profits. To be fair, CBRL has historically maintained an extremely high dividend payout ratio, but that fact won’t exactly give investors the warm fuzzies.

CVR Energy (CVI)

Dividend Yield: 12.8%

Short Interest (% of Float): 28.1%

Texas-based CVR Energy (CVI, 12.8% yield) deals in renewable fuels and petroleum refining, as well as nitrogen fertilizer manufacturing through its interest in CVR Partners LP (UAN).

Unsurprisingly, CVI was among the laundry list of energy firms that cut their payouts during COVID. (Specifically, CVI reduced its dividend by 50%, then suspended it entirely.) It paid a special dividend in 2021, then went to a regular-and-special formula starting in 2022. Currently, its 50-cent quarterly dividend yields 5.7%, and its special dividends over the past 12 months have added another 7.1% to that, to combine for a yield of nearly 13%.

Investors cheered CVR’s summer announcement that it wouldn’t pursue a spinoff of its UAN stake—good news, if nothing else, for the dividend. But the jump in stock price also triggered a big buildup of shorts—a buildup that continued after Carl Icahn (who still owns roughly two-thirds of all CVI stock) sold 4.1 million shares in September.

This is a shaky situation—one that hinges not just on refined product prices, but also whether Carl Icahn’s selling was a one-off or the start of a trend. The latter could dampen any positive momentum CVI might build.

An important note about short interest: the Financial Industry Regulatory Authority (FINRA) only requires brokers to report short interest positions twice a month. So when you look at short data, you also want to see what the stock has been up to since then. The most recent data is from Jan. 31, 2024, which is a lot of time for a stock to move. CVI is up about 4% since then—not enough to suggest a significant move in the shorts in either…