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 Mueller Industries, Inc. (NYSE:MLI) 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.
A worker welding a pipe joint in a metal fabrication facility.
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).
Mueller Industries, Inc. (NYSE:MLI)
Number of Hedge Fund Holders: 27
Market Cap as of December 7: $8.95 billion
Enterprise Value as of December 7: $8.02 billion
Mueller Industries, Inc. (NYSE:MLI) ranks second on our list of the best debt free stocks that pay dividends. The American machinery industry company manufactures a wide range of products for industrial markets. The company has attracted investors’ interest due to strong operational improvements, favorable market conditions, and its undervalued position relative to competitors. MLI, a leader in essential but often overlooked markets, produces basic components for water infrastructure, HVAC, and industrial applications. The company benefits from a well-balanced business model, with its piping systems segment contributing the majority of its operational profits and revenues. The stock is up nearly 69% YTD.
In the third quarter of 2024, Mueller Industries, Inc. (NYSE:MLI) posted revenues of $997.8 million, which jumped by 21.7% from the same period last year. The company’s operating income came in at $206.7 million, up from $181 million in the prior-year period. The rise in net sales was driven by $102.4 million in sales from recently acquired businesses, along with the increase in copper prices.
Mueller Industries, Inc. (NYSE:MLI) has been growing its dividends for the past four years. The company currently offers a quarterly dividend of $0.20 per share and has a dividend yield of 1.02%, as of December 7.
Of the 900 hedge funds tracked by Insider Monkey at the end of Q3 2024, 27 funds owned stakes in Mueller Industries, Inc. (NYSE:MLI), up from 25 in the previous quarter. The overall value of these stakes is more than $424.7 million. Among these hedge funds, GAMCO Investors was the company’s leading stakeholder in Q3.
Overall, MLI ranks 2nd on our list of the best debt free stocks that pay dividends. While we acknowledge the potential for MLI 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 MLI 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.
