Now we are in a bear market and sell stocks short maybe is a good idea. But how to find stocks to sell short? We look at Dividend Cuts!
Our favorite criteria for selecting candidates for short selling are dividend cuts or even suspensions. Dividend cuts are usually a clearly negative sign of a company’s financial health. There are few exceptions e.g. when the company needs money for takeovers or share buybacks. Therefore, always check why the company cuts dividends. The classic so-called drip investor will reject companies that can no longer increase their dividends. Institutional investors will also say goodbye here.
Dividends are increasingly being cut, particularly in bear markets:
Lets look at some historical samples:
General Motors (GM) paid good dividends relatively consistently over the decades. At the end of 2005, the dividend yield was over 10%. In February 2006, GM cut the dividend by 50%, and in May 2008, it was canceled entirely.
J.C.Pennys (JCP), a company with numerous retail department stores had overslept the internet boom and cut its dividend in May 2012. Monthly chart:
Eastman Kodak cut its dividend by 43% in October 2003, to invest in new technologies! The six years before that, the company had an average dividend yield of 6.7%.
In the wake of the financial crisis, Citigroup (C) cut its dividend by 40% in early 2008 and then almost entirely in October 2008. Monthly chart:
The following companies have reduced their dividends since March 2020. These companies are on our watch list for short selling stocks:
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