We recently compiled a list of the 8 Best Dividend Paying Debt Free Stocks to Invest in. In this article, we are going to take a look at where Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC) stands against the other best debt free stocks that pay dividends.

Debt financing is not inherently negative; its impact largely depends on how effectively it is utilized. When managed properly, it can drive substantial cash flow and enhance returns for shareholders. However, poor management of debt can weaken a company’s financial stability. In the second quarter, corporate debt levels decreased despite benchmark interest rates remaining unchanged between April and June. Total debt for both investment-grade and non-investment-grade companies fell to $8.432 trillion, down from $8.517 trillion in the previous quarter. Investment-grade companies reduced their debt by approximately 0.9% to $6.610 trillion, while those rated below BBB- by S&P Global Ratings lowered their debt by about 1.2% to $1.822 trillion, based on data from S&P Global Market Intelligence.

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The S&P Global report also highlighted that while total debt among U.S. investment-grade companies declined overall, seven out of 10 nonfinancial sectors experienced debt growth in the second quarter. The energy sector recorded the largest increase, with total debt rising by 4.1% to $502.03 billion. However, this increase was largely offset by a significant 12.7% drop, equivalent to $98.87 billion, in debt within the information technology sector. For non-investment-grade companies, debt decreased across eight of the 10 sectors, with consumer staples experiencing the steepest decline at 7.7%. Conversely, total debt rose only in the healthcare and energy sectors within this category.

While many US companies maintain strong balance sheets, a significant share of defaults has come from low-rated firms with negative cash flow, high debt levels, and limited liquidity. These heavily indebted businesses, often referred to as “zombies,” struggle to stay afloat, barely covering their loan interest payments, and are vulnerable to even minor setbacks. An analysis by the Associated Press found that nearly 7,000 publicly traded companies globally, including 2,000 in the U.S., fall into this category. These firms were impacted by years of accumulating inexpensive debt, followed by persistent inflation that pushed borrowing costs to their highest levels in a decade. Additionally, much of the borrowed funds were not directed toward growth initiatives like expansion, hiring, or technological investment but were instead used for stock buybacks.

Financial analysts have pointed out that U.S. companies have not taken sufficient steps to reduce their long-term debt, leading to a worsening situation. For the first time, annual interest expenses have exceeded $1 trillion, reaching $1.16 trillion in 2024. According to a Treasury official, the average interest rate on government debt increased to 3.32% in 2024, compared to 2.97% the previous year. The Congressional Budget Office projects that the national debt, currently near 100% of GDP, will climb to 122% by 2034.

Using debt to support dividends is typically viewed unfavorably, especially in light of practices observed during the 2020 pandemic. At that time, many private companies turned to dividend recapitalization, borrowing funds to maintain dividend payouts. The trend persisted in 2024 as well. As of September 30, 2024, US companies, including those not supported by private equity, have secured a record $70.2 billion in leveraged loans for dividend recapitalizations, based on data from PitchBook. This amount surpasses the $67.2 billion recorded in 2021, the previous high point for such activity.

That said, many companies have maintained stable balance sheets, with US firms consistently setting new records for dividend payments year after year.

Our Methodology

To create this list, we first used a screener and 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. From that list, we picked 8 companies with the highest number of hedge funds having stakes in them, as per Insider Monkey’s database of Q3 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).

Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC)

Number of Hedge Fund Holders: 19

Market Cap as of December 7: $2.60 billion 

Enterprise Value as of December 7: $2.06 billion

Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC) ranks fifth on our list of the best debt free stocks that pay dividends. The Singapore-based semiconductor manufacturing company specializes in cutting-edge semiconductors and electronics assembly solutions. The stock is down by over 8.5% so far this year. The company experienced a significant drop in demand for its core ball-bonder equipment, which is used to package high-volume general electronics like phones and PCs, following the surge during the pandemic. Although these markets have started to rebound slightly, they have yet to show substantial recovery. Additionally, the company’s industrial and automotive wedge-bonding equipment has faced a recent downturn due to the slowdown in the electric vehicle market.

However, in its Q3 2024 earnings call, Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC) highlighted that it is focused on promoting market adoption of its advanced packaging and assembly solutions, which include vertical wire, high-power interconnect (HPI), advanced dispense, and fluxless thermo-compression (FTC) technologies. Demand for these solutions is expected to gain momentum as the general semiconductor and automotive markets recover, projected to accelerate throughout fiscal year 2025. In fiscal Q4 2024, the company reported revenue of $181.3 million, which surpassed analysts’ estimates by $1.02 million.

On November 13, Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC) announced a 2.5% hike in its quarterly dividend to $0.205 per share. This was the company’s fifth consecutive year of dividend growth. Its strong cash position makes it a strong dividend payer. In the most recent quarter, the company generated $31.6 million in operating cash flow and its free cash flow for the period came in at $29.2 million.

Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC) was a part of 19 hedge fund portfolios at the end of Q3 2024, up from 17 in the previous quarter, as per Insider Monkey’s database. The stakes owned by these hedge funds have a consolidated value of nearly $200 million.

Overall, KLIC ranks 5th on our list of the best debt free stocks that pay dividends. While we acknowledge the potential for KLIC to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than KLIC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock. 

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Disclosure: None. This article is originally published at Insider Monkey.