Sturm, Ruger & Co.
Dividend Yield: 3.7%
Float Short (as of July 31 data): 30%
Our first company, Sturm, Ruger & Co. (RGR) yields well north of 3% yet is pretty heavily shorted … though the company isn’t in terribly dire straits. But you could find much more appealing sources of income right now.
Using the past four payouts, RGR’s yield sits at 3.7%, but if you annualize the most recent 65-cent payout, that’s bumped up to a hefty 5%. Meanwhile, RGR’s dividend has increased at a robust rate in recent years, and it also paid out a $4.50-per-share special dividend near the end of 2012.
Plus, the fundamentals aren’t bad either. Cash and short-term equivalents have increased during the past three quarters, and operating cash flow has more than doubled in the past three years.
The bad news — besides the hefty 30% of the float that’s sold short — is that RGR earnings are set for a big drop. Sturm, Ruger’s EPS is expected to decline 32% in 2004, which would be $3.50 … and thus simply maintaining that 65-cent quarterly payout would take nearly 75% of the company’s earnings.
Also, short sellers aren’t the only RGR bears — the median analyst target for the stock is $40, which represents 30% downside from current prices. And a drop like that would eat up your dividends and then some pretty quickly.