The value of not owing money is good value indeed. A business with no debt is freed from the significant anxiety that comes with the need to pay back borrowed money. The CEO and the leadership team can spend time focusing on innovation, for example, rather than double-checking the monthly figures on the debt load.
When Benjamin Graham included low debt as a factor in selecting value stocks (in his classic work, "The Intelligent Investor"), he was making this important point. Mainly, it’s the concept that a company which owes little or nothing is more likely to make it through difficult economic circumstances. It’s not complicated – a business loaded up on debt could be forced to make tough choices or even have decision-making taken away from them.
Here are four stocks that make it through the screens for having no or insignificant debt. Because each one has a relatively low price-earnings ratio and each one pays a dividend, they’re probably worth considering as the kind of value Graham might have favored. These are diversified as well in terms of sector or industry.
Buckle Inc. (BKE, Financial) is a New York Stock Exchange-traded company in the apparel business – you can tell by the name of the company what they specialize in. The price-earnings ratio is 10 – this, at a time when the Shiller price-earnings ratio of the S&P 500 sits at 39.
The five-year earnings per share growth is -2.8%, but this year’s earnings per share grew at 24.1%. Buckle has zero long-term debt and the current ratio is a positive 2.2. The company pays a 3.26% dividend. Average daily volume is on the light side for an NYSE-listed stock: 577,000 shares. It’s important to consider the short float, which sits at 18%. If these shorts were ever forced to cover, that might incite quite a rally.
DRDGold Ltd. (DRD, Financial) is a South African-based miner that trades on the New York Stock Exchange. The company has a debt-to-equity ratio of 0.01. In other words, next to nothing.
The current ratio is 4.5. Earnings per share grew this year at an extraordinary 601%. The earnings per share growth rate over the past five years is 36%. DRDGold has a price-earnings ratio of just 10.21. Investors at this price receive a 5.22% dividend. With an average daily volume of just 221,000 shares, it’s unlikely that large institutional investors are involved.
Ethan Allen Interiors Inc. (ETD, Financial) is a well-known brand name in the home furnishings business. The NYSE-listed stock trades with a price-earnings ratio of just 10.33.
The earnings per share growth this year comes in at a remarkable 593%. The five-year earnings growth rate is just 3.4%. Ethan Allen has no long-term debt and a current ratio of 1.3. The dividend yield is 4.1%. This is another one where very large institutional investors would not be able to find the liquidity they typically need: average daily volume is a mere 332,000 shares. The short float is almost 10%, something to consider if those short are forced to buy back at some point.
First Hawaiian Inc. (FHB, Financial) falls into the regional bank category and trades on the New York Stock Exchange with a price-earnings ratio of 13.49.
Earnings per share are off this year, coming in at -33%. The five-year earnings per share rate of growth is -1.4%. The most recent quarter-to-quarter earnings growth is 333%. First Hawaiian pays a 3.7% dividend. The company has zero long-term debt. Average daily volume is 781,000 shares.
That’s a bank stock, a home furnishings stock, a precious metals stock and an apparel stock: this is a diversified group of equities. This is what comes up if you screen for low or no debt, low price-earnings ratios and dividend-paying.
