In this article, we will analyze the list of the best debt free dividend stocks.
Debt financing isn’t always a bad thing; its effect depends on how companies use it. When managed well, it can generate significant cash flow and boost shareholder returns. However, if misused, debt can harm a company’s overall financial health. Though investor sentiment this year is being boosted by expected interest rate cuts from the Federal Reserve, which is also contributing to this year’s stock market rally, companies in the US still carry excessively high levels of debt on their balance sheets. According to a report by S&P Global Ratings, corporate debt defaults surged last year and could pose challenges again in 2024 as companies with limited cash struggle with high interest rates. In 2023, 153 companies failed to meet their debt payment obligations, a significant increase from 85 in the previous year, representing an 80% rise. This marked the highest default rate in seven years, excluding the spike related to COVID-19 in 2020.
While many U.S. companies have strong balance sheets, a significant portion of the defaults came from low-rated companies with negative cash flows, heavy debt burdens, and weak liquidity. Analysts refer to these heavily indebted companies as “zombies,” as they struggle to survive, barely managing to pay the interest on their loans, and are often one setback away from failure. An Associated Press analysis revealed that the number of such companies has surged to nearly 7,000 publicly traded firms worldwide, including 2,000 in the United States. These companies have been affected by years of accumulating cheap debt, followed by persistent inflation that has driven borrowing costs to their highest levels in a decade. Moreover, zombie debt was frequently not used for expansion, hiring, or investing in technology, but rather for repurchasing their own stock.
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Financial experts indicate that US companies had an opportunity to reduce their debt obligations following then-President Donald Trump’s 2017 tax overhaul, which lowered corporate tax rates and facilitated the repatriation of overseas profits. However, most of this financial benefit was used for stock buybacks rather than addressing debt. As a result, the situation has deteriorated to the point where the government is projected to spend $870 billion this year just on interest payments on its debt, an increase of one-third from the previous year and more than the defense budget.
Even with the tax overhaul, debt wasn’t going to disappear on its own. According to the Federal Reserve, corporate America held a $13.7 trillion debt load in 2023. Company debt has increased by 18.3% since 2020, as businesses capitalized on the Fed’s interest rate cuts during the early days of the COVID-19 pandemic. Moreover, according to a report by the Wall Street Journal, US companies will need to renegotiate approximately $1.87 trillion in corporate debt over the next few years, facing higher interest rates. This will largely depend on their sales forecasts for the coming months and years, as companies will negotiate to secure the most favorable interest rates possible.
Debt is generally not seen as a favorable option for supporting dividends. This was particularly evident during the 2020 pandemic when many private companies resorted to dividend recapitalization—taking on new debt to fund dividend payments. This practice remains common among private equity-backed firms after the pandemic as well. In the first half of 2024, dividend recapitalizations have surged, with about $30.2 billion in leveraged loans issued to cover these payments, matching the amount seen in 2021, which was the highest in at least a decade, according to PitchBook LCD data.
That said, corporate balance sheets are currently strong, with companies worldwide distributing record dividends to shareholders. In this article, we will discuss some of the best debt free dividend stocks that pay dividends.
Speedcurve Performance Analytics
Our Methodology:
To create this list, we first identified companies with minimal or no debt. From this pool, we selected those that consistently pay dividends to shareholders and compared their enterprise value (EV) to their market capitalization to gauge which ones are debt-free. We then narrowed down the list by including stocks that had sustainable dividend yields. The stocks are ranked in ascending order of their dividend yields, as of August 16.
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).
7. Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC)
Dividend Yield as of August 16: 1.8%
Market Cap as of August 16: $2.37 billion
Enterprise Value as of August 16: $1.81 billion
Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC) is a Singapore-based semiconductor manufacturing company that develops cutting-edge semiconductors and electronics assembly solutions. The company’s expanding array of products and services fosters growth and enables technological advancements across large-scale markets. The stock surged by over 3% on August 7 after announcing encouraging earnings. Although the recovery is gradual, rising utilization rates and ongoing short-term industry growth offered a positive outlook for coordinated expansion in capacity and technology across various end markets. The company is also advancing the adoption of its cutting-edge Fluxless Thermo-Compression (FTC), Vertical-Fan-Out (VFO), and High-Power-Interconnect (HPI) solutions through industry partnerships, customer development initiatives, and recent successes in the market.
In fiscal Q3 2024, Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC) reported revenue of $$181.7 million, which though fell by 5% from the same period last year, showed growth by 5.6% on a QoQ basis. Its net income for the quarter came in at $19.3 million, or $0.35 per fully diluted share. As of the most recent quarter, it has roughly $40 million in total debt. The company is confident in its performance this quarter and has provided optimistic guidance for the next, projecting revenue to reach $180 million for the upcoming quarter.
Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC) is a strong dividend payer because of its solid cash generation. In the second quarter of 2024, the company generated $27 million in operating cash flow and its adjusted free cash flow for the period came in at $24.2 million. It ended the quarter with $367 million available in cash and cash equivalents. The company has been growing its dividends for the past four years and currently pays a quarterly dividend of $0.20 per share. During the most recent quarter, it returned $11 million to shareholders through dividends, which makes KLIC one of the best debt-free dividend stocks on our list. The stock’s dividend yield on August 16 came in at 1.8%.
At the end of Q2 2024, 17 hedge funds tracked by Insider Monkey held stakes in Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC), up from 14 in the previous quarter. These stakes are collectively valued at over $170.4 million. Among these hedge funds, Royce & Associates was the company’s largest stakeholder in Q2.
6. RPC, Inc. (NYSE:RES)
Dividend Yield as of August 16: 2.54%
Market Cap as of August 16: $1.36 billion
Enterprise Value as of August 16: $1.12 billion
RPC, Inc. (NYSE:RES) is an American oil and gas company, headquartered in Georgia. The company mainly provides oilfield services and equipment to related companies and industries. The company’s performance has been mixed, reflecting broader industry dynamics. Revenue from the pressure pumping segment, which is the company’s largest service line, dropped by 17% due to lower asset utilization in a highly competitive market, particularly among spot and semi-dedicated customers. However, revenues from all other service lines combined rose by 8%.
RPC, Inc. (NYSE:RES) is also encouraged by its top and bottom-line performance in several areas of the business. Downhole tools had a strong quarter, and there is optimism that newly launched products will sustain this momentum. Cementing and rental tools experienced modest sequential growth, while coiled tubing saw a double-digit increase. The company is enthusiastic about emerging opportunities in coiled tubing, particularly in specialized work that leverages its existing technologies. At the end of the quarter, the company remained debt-free and in fact, returned $8.6 million to shareholders through dividends, which makes it one of the best debt-free stocks that pay dividends.
RPC, Inc. (NYSE:RES) maintained a solid balance sheet, producing sufficient cash flow to benefit its shareholders. Year-to-date, the company’s operating cash flow was $184.5 million and its free cash flow for the period came in at $56.7 million. The dividends paid during this period amounted to $17.2 million. The company began issuing dividends in 1997 and has consistently paid them ever since, except for a two-year pause between 2019 and 2021. Currently, it pays a quarterly dividend of $0.04 per share and has a dividend yield of 2.54%, as of August 16.
As of the close of Q2 2024, 11 hedge funds tracked by Insider Monkey held stakes in RPC, Inc. (NYSE:RES), down from 13 in the preceding quarter. The consolidated value of these stakes is more than $50.6 million.
5. Cal-Maine Foods, Inc. (NASDAQ:CALM)
Dividend Yield as of August 16: 2.67%
Market Cap as of August 16: $3.47 billion
Enterprise Value as of August 16: $2.66 billion
Cal-Maine Foods, Inc. (NASDAQ:CALM) is the largest producer and distributor of fresh shell eggs in the US. The company’s operations faced mild disruptions due to highly pathogenic avian influenza (HPAI). Despite these challenges, they successfully fulfilled customer demands. Over the year, the company stayed committed to its growth strategy, providing a product mix that aligned with customer needs. The operations were performed efficiently, and a strong focus was maintained on achieving operational excellence. Since the start of 2024, the stock returned 24.8% and its 12-month returns came in at over 48%.
Cal-Maine Foods, Inc. (NASDAQ:CALM)’s strong performance is evident in the completion of two asset acquisitions during fiscal 2024, with an additional acquisition finalized after the fiscal year ended. Each acquisition aligns with the company’s organic growth initiatives. The company is enthusiastic about the new assets, including those of Fassio Egg Farms, Inc. in Erda, Utah, and the former broiler processing plant, hatchery, and feed mill in Dexter, Missouri, previously operated by Tyson Foods. The demand for the company’s products is evident through the recent acquisitions it has made. Diamond Hill Capital also highlighted this in its Q3 2023 investor letter. Here is what the firm has to say:
“On an individual holdings’ basis, top contributors to return in Q3 included Civitas Resources and Cal-Maine Foods, Inc. (NASDAQ:CALM). Fresh egg producer Cal-Maine Foods has positioned itself well to capitalize on the growing trend toward cage-free and specialty eggs. In May, the US Supreme Court upheld Proposition 12, whereby California can dictate only cage-free eggs be sold in the state — an outcome which will likely open the door for other states to either institute or maintain similar mandates, and which should drive increased long-term demand for Cal-Maine Foods’ eggs.”
Cal-Maine Foods, Inc. (NASDAQ:CALM) has been paying variable dividends since the third quarter of 2008. Though its dividend policy remained unstable during the years following the pandemic, it still got back on its feet with its payouts. In the most recent quarter, it returned $37.8 million to shareholders through dividends. Currently, it pays a quarterly dividend of $0.77 per share and has a dividend yield of 2.67%, as of August 16.
At the end of June 2024, 25 hedge funds owned stakes in Cal-Maine Foods, Inc. (NASDAQ:CALM), up from 24 in the previous quarter, as per Insider Monkey’s database. These stakes have a total value of nearly $260 million. With over 2.1 million shares, Renaissance Technologies was the company’s leading stakeholder in Q2.
4. FinVolution Group (NYSE:FINV)
Dividend Yield as of August 16: 4.16%
Market Cap as of August 16: $1.48 billion
Enterprise Value as of August 16: $296.8 million
A Chinese fintech platform, FinVolution Group (NYSE:FINV) ranks fourth on our list of the best debt-free stocks that pay dividends. The company offers a wide range of related services, including credit risk assessment, loan transactions, and fraud detection. The stock is up over 18% since the start of 2024, benefitting from a steady increase in registered users across both Chinese and international markets. In the first quarter of 2024, it reported a substantial 49.7% growth in international registered users, reaching 26.8 million. The international markets continued to thrive, with transaction volume reaching RMB2.21 billion ($305.06 million), reflecting a 40.8% increase from the previous year. Additionally, the outstanding loan balance rose to RMB1.27 billion ($175.3 million), showing a 33.7% year-over-year growth. These figures underscore the company’s success in capitalizing on opportunities in various countries.
Demonstrating its commitment to providing ongoing value to shareholders, FinVolution Group (NYSE:FINV) invested $27.2 million in share buybacks during the first quarter of 2024. Since 2018, the company has returned a total of $632.2 million to shareholders through its capital return program, highlighting its consistent dedication to shareholder value.
FinVolution Group (NYSE:FINV), one of the best debt-free stocks, currently offers an annual dividend of $0.237 per share, having raised it by 10.2% this year. This marked the company’s fourth consecutive year of dividend growth. The stock’s dividend yield on August 16 came in at 4.16%.
FinVolution Group (NYSE:FINV) was a part of 8 hedge fund portfolios at the end of Q2 2024, compared with 11 in the previous quarter, as per Insider Monkey’s database. The stakes held by these hedge funds have a collective worth of over $22 million. Among these hedge funds, GLG Partners was the company’s leading stakeholder in Q2.
3. Janus Henderson Group plc (NYSE:JHG)
Dividend Yield as of August 16: 4.29%
Market Cap as of August 16: $5.79 billion
Enterprise Value as of August 16: $4.24 billion
Janus Henderson Group plc (NYSE:JHG) ranks third on our list of the best debt free stocks that pay dividends. The UK-based asset management company offers a wide range of financial products and services to its consumers. The company takes pride in assisting over 60 million people in investing for a brighter future, drawing on its 90 years of experience. This long history has shaped a strong research culture and a people-focused approach, which helps clients define and achieve exceptional financial outcomes. From 2015 through the second quarter of 2024, the company grew its assets under management (AUM) from $190 billion to $361.4 billion.
Janus Henderson Group plc (NYSE:JHG) reported strong earnings in the second quarter of 2024. This success is attributed to strong markets, effective alpha generation, cost control, and increased productivity, which resulted in a nearly 37% year-over-year increase in diluted adjusted EPS. The company’s robust balance sheet allows for flexibility in both organic and inorganic investments, as well as returning cash to shareholders. During the quarter, it paid $97 million to shareholders through dividends and share buybacks. In addition, the active M&A pipeline and recent bolt-on acquisitions are seen as the start of several future partnerships aimed at meeting clients’ needs and supporting the company’s growth. The company has a debt-to-equity ratio of 0.06, which is a lot less than its competitor Affiliated Managers Group’s 0.5. It is among the best debt free stocks on our list.
Janus Henderson Group plc (NYSE:JHG) started its dividend policy in 2017 and has paid regular dividends to shareholders since then. The company pays a quarterly dividend of $0.39 per share and has an impressive dividend yield of 4.29%, as of August 16.
Insider Monkey’s database for Q2 2024 indicated that 31 hedge funds owned stakes in Janus Henderson Group plc (NYSE:JHG), compared with 36 in the previous quarter. The consolidated value of these stakes is roughly $233 million.
2. T. Rowe Price Group, Inc. (NASDAQ:TROW)
Dividend Yield as of August 16: 4.56%
Market Cap as of August 16: $24.2 billion
Enterprise Value as of August 16: $21.8 billion
An American asset management company, T. Rowe Price Group, Inc. (NASDAQ:TROW) specializes in offering a wide range of related services to institutions, individuals, and businesses. Earlier this year, the company announced that it is focusing on corporate debt from countries like the Philippines, Brazil, and Mexico as the new year begins while moving away from the more volatile frontier-market bonds that performed well in 2023. According to Samy Muaddi, who manages the firm’s $25 billion emerging-market debt strategy, this approach allows them to invest in companies from relatively stable nations, especially as the rally in high-risk government bonds slows down. He favors bonds from commodity producers, utilities, and banks in major developing economies that either earn US dollars or can manage their currency risks effectively.
By the end of July 2024, T. Rowe Price Group, Inc. (NASDAQ:TROW)’s assets under management increased to $1.59 trillion, up from $1.57 trillion at the end of June. Management attributed this growth to favorable market conditions. However, the company also reported net outflows of $3.7 billion for the second quarter of 2024. Despite expecting continued outflows in the second half of the year, there is optimism for improvement due to higher sales and reduced redemptions.
T. Rowe Price Group, Inc. (NASDAQ:TROW) has been growing its dividends consistently for the past 38 years. The company currently pays a quarterly dividend of $1.24 per share and has a dividend yield of 4.56%, as of August 16. In the most recent quarter, it also returned $396 million to shareholders through dividends and share repurchases.
The number of hedge funds tracked by Insider Monkey owning stakes in T. Rowe Price Group, Inc. (NASDAQ:TROW) grew to 28 in Q2 2024, from 24 in the previous quarter. The total value of these stakes is nearly $500 million.
1. Epsilon Energy Ltd. (NASDAQ:EPSN)
Dividend Yield as of August 16: 4.65%
Market Cap as of August 16: $118.16 million
Enterprise Value as of August 16: $110.1 million
Epsilon Energy Ltd. (NASDAQ:EPSN) is a Texas-based independent oil and natural gas company that specializes in the acquisition, development, gathering, and production of natural gas and oil reserves. The company’s recent quarterly earnings were strong. Its Permian assets have continued to perform strongly, showing significant quarter-over-quarter increases in both oil volumes and revenue. This performance is attributed to a full quarter’s contribution from the acquisition made in the first quarter and one month of production from the sixth well in the Pradera Fuego project. Additional sequential oil growth is anticipated in the third quarter, as the sixth well will have a full quarter of contribution and the seventh well is now on flowback, producing over 700 barrels of oil per day while still being cleaned up.
Epsilon Energy Ltd. (NASDAQ:EPSN) is well-positioned for ongoing growth in the Permian Basin and anticipates significant potential for its Marcellus assets in the coming year, given the improving natural gas environment. With a recently expanded and undrawn credit facility, along with strong cash flows and available cash, the company is in a strong position to maintain its dividend payments and explore promising new projects.
For the first six months of 2024, Epsilon Energy Ltd. (NASDAQ:EPSN) generated over $9 million in operating cash flows. The company started paying dividends in 2022 and has paid regular dividends since then. In the second quarter of 2024, it returned $1.4 million to shareholders through dividends. Currently, it offers a quarterly dividend of $0.0625 per share for a dividend yield of 4.65%, as of August 16.
According to Insider Monkey’s database of Q2 2024, 7 hedge funds held stakes in Epsilon Energy Ltd. (NASDAQ:EPSN), up from 6 in the previous quarter. These stakes are worth over $31.4 million in total. With over 3.6 million shares, Solas Capital Management was the company’s leading stakeholder in Q2.
While we acknowledge the potential of EPSN as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than EPSN but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
