In this article, we discuss 11 best dividend-paying debt free stocks to buy. You can skip our detailed analysis of dividend stocks and their previous performance, and go directly to read 5 Best Dividend Paying Debt Free Stocks to Buy.
Debt financing isn’t always a bad thing; its impact largely depends on how companies leverage it. When utilized wisely, it can significantly draw cash flows for businesses and ultimately contribute to enhancing shareholder return. On the other hand, debt can negatively affect the overall financial being of a company. This can be seen now as with higher interest rates, companies carrying an excessive amount of debt on their balance sheets might face a challenging period as Fed rates are expected to remain elevated throughout 2024. According to a report by S&P Global Ratings, last year witnessed a significant surge in corporate debt defaults, a trend that could also persist in 2024. In 2023, the number of companies failing to meet their debt obligation stood at 153, up from 85 the previous year. This represents the highest default rate recorded in seven years, excluding the spike seen during the COVID-19 pandemic in 2020.
The challenging situation for corporate America may escalate further this year, which, according to the Federal Reserve is carrying a $13.7 trillion debt load. According to S&P, company debt has grown by 18.3% since 2020, which is mainly attributed to companies capitalizing on the Fed’s decision to slash interest rates during the initial stages of the pandemic. Here are some comments from the firm:
“In 2024, we expect further credit deterioration globally, predominantly at the lower end of the rating scale (rated ‘B-’ or below), where close to 40% of issuers are at risk of downgrades. We expect financing costs to remain elevated despite the prospect of rate cuts. And while borrowers have reduced their 2024 maturities, a large share of speculative-grade debt is expected to mature in 2025 and 2026.”
Debt has typically not been regarded as a favorable choice from the perspective of dividends. This was evident during the pandemic of 2020 when numerous private companies engaged in dividend recapitalization, a practice of taking on new debt in order to fund dividend payments. According to a report by S&P Global Market Intelligence’s Leveraged Commentary and Data, in the second half of 2020, private equity-backed firms borrowed approximately $27 billion to finance dividends and restructure debt. However, corporate balance sheets are currently showing strength, with companies globally paying out record dividends to shareholders. The New York Times Company (NYSE:NYT), Cincinnati Financial Corporation (NASDAQ:CINF), and A. O. Smith Corporation (NYSE:AOS) are some of the best debt-free stocks that pay dividends among others that are discussed below in this article.
11 Best Dividend Paying Debt Free Stocks to Buy
Our Methodology:
For our list of the best debt free stocks that pay dividends, we used a Finviz stock screener and picked stocks with debt to equity ratio of below 1, which shows that these companies rely more on equity financing. From these companies we picked 11 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of 933 hedge funds and their holdings as of Q4 2023. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
Piper Sandler Companies (NYSE:PIPR) is a Minnesota-based investment banking company that offers a wide range of financial services to institutions and individual investors. The company currently offers a quarterly dividend of $0.60 per share and has a dividend yield of 1.14%, as of May 8. It is among the best debt free stocks on our list.
In the first quarter of 2024, Piper Sandler Companies (NYSE:PIPR) returned $88 million to shareholders through dividends and share repurchases. The company also paid a special cash dividend of $1.00 per share of common stock, for an aggregate of $35.7 million.
At the end of Q4 2023, 9 hedge funds tracked by Insider Monkey held stakes in Piper Sandler Companies (NYSE:PIPR), up from 8 in the previous quarter. The collective value of these stakes is over $106.5 million. Among these hedge funds, North Reef Capital was the company's leading stakeholder in Q4.
10. The Bank of N.T. Butterfield & Son Limited (NYSE:NTB)
Number of Hedge Fund Holders: 16
The Bank of N.T. Butterfield & Son Limited (NYSE:NTB) is a financial services company, based in Bermuda. The company offers various banking and financial services to its consumers. The company started paying dividends in 2016 and has paid uninterrupted dividends to shareholders since then. It currently offers a quarterly dividend of $0.44 per share and has a dividend yield of 4.98%, as of May 8. NTB is among the best debt free stocks to buy now.
The number of hedge funds tracked by Insider Monkey owning stakes in The Bank of N.T. Butterfield & Son Limited (NYSE:NTB) grew to 16 in Q4 2023, from 12 in the previous quarter. These stakes have a total value of over $106 million.
An American insurance company, RLI Corp. (NYSE:RLI) is next on our list of the best debt free stocks to buy. The company has been growing its dividends consistently for the past 49 years and currently offers a quarterly dividend of $0.29 per share. As of May 8, the stock has a dividend yield of 0.79%.
RLI Corp. (NYSE:RLI) reported a strong cash position in the first quarter of 2024. The company generated roughly $71 million in the operating cash flow, up from $70 million during the same period last year. Over the last five years, the company returned approximately $816 million to shareholders through dividends.
As of the end of Q4 2023, 18 hedge funds in Insider Monkey's database held stakes in RLI Corp. (NYSE:RLI), which remained unchanged from the previous quarter. The consolidated value of these stakes is more than $368.2 million. With roughly 1.2 million shares, Markel Gayner Asset Management was the company's leading stakeholder in Q4.
8. Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC)
Number of Hedge Fund Holders: 23
Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC) specializes in semiconductor packaging and electronic assembly equipment. On March 14, the company declared a quarterly dividend of $0.20 per share, which was in line with its previous dividend. It has been growing its payouts consistently for the past four years. With a dividend yield of 1.67% as of May 8, KLIC is one of the best debt free stocks to buy now.
According to Insider Monkey's database of Q4 2023, 23 hedge funds, growing from 19 in the previous quarter, owned investments in Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC). These stakes are worth over $190 million in total.
Diamond Hill Capital mentioned Kulicke and Soffa Industries in its Q3 2023 investor letter. Here is what the firm has to say:
“We also initiated short positions in Mueller Industries, Inc. (NYSE:MLI), Bank of Hawaii, Alarm.com Holdings and Garmin in Q3. Mueller Industries is a leading producer of copper tubes and pipes for plumbing and HVAC systems — a cyclical industry with largely commoditized products that has seen meaningful margin gains in recent years tied to tailwinds we anticipate will likely reverse in coming years. Further, we expect long-term volume trends will likely remain sluggish as copper piping continues losing share to plastic over time. Given our expectation earnings power will revert to historical levels over time, we initiated a short position during the quarter.”
Mueller Industries, Inc. (NYSE:MLI) is a Tennessee-based machinery industry company that manufactures a wide range of products for industrial markets. On February 23, the company declared a 33% hike in its quarterly dividend to $0.20 per share. This was the company's fourth consecutive year of double-digit dividend growth. The stock's dividend yield on May 8 came in at 1.37%. MLI is one of the best debt free stocks on our list.
In the first quarter of 2024, Mueller Industries, Inc. (NYSE:MLI) reported an operating cash flow of $173.6 million and its cash balance was $1.36 billion. During the quarter, the company returned over $22 million to shareholders through dividends.
Mueller Industries, Inc. (NYSE:MLI) was a part of 24 hedge fund portfolios at the end of Q4 2023, up from 21 in the preceding quarter, as per Insider Monkey's database. The stakes owned by these hedge funds have a total value of over $403.3 million. Among these hedge funds, GAMCO Investors was the company's leading stakeholder in Q4.
Janus Henderson Group plc (NYSE:JHG) ranks sixth on our list of the best debt free stocks to buy. The UK-based asset management company has been paying regular dividends to shareholders since the inception of its dividend policy in 2017. In addition to this, it paid $145 million to shareholders through dividends in the first quarter of 2024. The company offers a quarterly dividend of $0.39 per share and has an impressive dividend yield of 4.73%.
As per Insider Monkey's database of Q4 2023, 26 hedge funds held stakes in Janus Henderson Group plc (NYSE:JHG), compared with 27 in the previous quarter. These stakes are valued at over $1.3 billion collectively.
