We recently compiled a list of the 10 Best Debt Free Dividend Stocks to Invest in. In this article, we are going to take a look at where Cal-Maine Foods, Inc. (NASDAQ:CALM) stands against the other debt free dividend stocks.

Debt financing is not necessarily a bad thing; its effect is determined by how efficiently it is handled. When used wisely, it can generate strong cash flow and boost shareholder returns. On the other hand, ineffective debt management can undermine a company’s financial health. According to data from S&P Global Market Intelligence, the total debt among US nonfinancial companies with credit ratings from S&P Global Ratings hit a new high in the third quarter. The combined debt for these rated nonfinancial firms grew by approximately 0.5% during the period, reaching $8.453 trillion and surpassing the previous record of $8.431 trillion set in the first quarter. The rise was primarily driven by investment-grade companies—those rated BBB- and above—which saw their total debt climb to $6.628 trillion in the third quarter, up from $6.493 trillion in the previous quarter.

The report further mentioned that debt levels among non-investment-grade companies rose across six sectors while declining in four. Among lower-rated firms, consumer staples companies saw the largest increase in leverage during the quarter, with total debt climbing to $88.80 billion from $58.70 billion in the previous quarter.

Also read: 13 Best Warren Buffett Dividend Stocks To Invest In Right Now

With borrowing costs on the rise, companies are increasingly turning to equity markets as a way to reduce debt. According to Bloomberg data, debt repayment was listed as a purpose for proceeds in over $28 billion worth of IPOs completed in the 12 months leading up to April, marking a 56% increase from the previous year. While bankers initially expected an even greater number of debt-driven stock offerings, many companies had secured favorable borrowing terms during the pandemic, reducing the urgency for such moves. However, asset managers note that as central banks delay interest rate cuts, higher borrowing costs are beginning to take a toll. This may prompt more companies to capitalize on strong equity markets to ease financial risk.

Although many US companies have solid balance sheets, a notable portion of defaults has come from lower-rated firms struggling with negative cash flow, high debt burdens, and limited liquidity. These highly leveraged businesses, often labeled as “zombies,” barely manage to cover their interest payments and remain highly vulnerable to even minor financial pressures. According to an Associated Press analysis, nearly 7,000 publicly traded companies worldwide—including 2,000 in the US—fall into this category. Many of these firms took on substantial debt at low interest rates over the years, only to face mounting pressure as persistent inflation drove borrowing costs to their highest levels in a decade. Instead of using borrowed funds for expansion, hiring, or technological upgrades, a significant portion was allocated to stock buybacks.

Relying on debt to sustain dividend payments is generally viewed negatively, particularly given the practices seen during the 2020 pandemic. During that period, many private companies resorted to dividend recapitalization, borrowing funds to continue distributing dividends. This trend carried over into 2024. By September 30, US companies—including those without private equity backing—had raised a record $70.2 billion in leveraged loans for dividend recapitalizations, according to PitchBook data. This figure exceeds the previous peak of $67.2 billion set in 2021.

Nevertheless, many companies have kept their balance sheets stable, with US firms regularly reaching new highs in dividend payouts each year. Given this, we will take a look at some of the best debt free stocks that pay dividends.

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 10 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).

A close-up of an organic egg being carefully washed and inspected before being packaged.

Cal-Maine Foods, Inc. (NASDAQ:CALM)

Number of Hedge Fund Holders: 24

Market Cap as of December 7: $5.36 billion

Enterprise Value as of December 7: $4.57 billion

Cal-Maine Foods, Inc. (NASDAQ:CALM) ranks fourth on our list of the best debt free stocks that pay dividends. The company is the leading producer and distributor of fresh shell eggs in the US. It reported a strong financial and operational performance in the second quarter of fiscal 2025. The company experienced robust demand for shell eggs, leading to a significant increase in dozens sold during the quarter, which included the seasonal boost leading up to Thanksgiving and sales from a recent acquisition completed in June. The results also benefited from higher market prices, which have continued to rise this fiscal year due to restricted supply levels of shell eggs caused by recent outbreaks of highly pathogenic avian influenza (HPAI). The stock has surged by over 103% in the past 12 months.

In fiscal Q2 2025, Cal-Maine Foods, Inc. (NASDAQ:CALM) reported revenue of $954.7 million, which showed a significant 82.4% growth from the same period last year. The company's net income for the quarter came in at over $219 million. It currently has around $60 million allocated to new capital projects aimed at expanding its cage-free capacity, including the $40 million in projects announced in October. These projects involve the addition of five new cage-free layer houses and two pullet houses across the company's locations in Florida, Georgia, Utah, and Texas.

Upon completion, Cal-Maine Foods, Inc. (NASDAQ:CALM) expects these projects to provide additional production capacity for approximately 1.1 million cage-free layer hens and 250,000 pullets by late summer 2025. Additionally, the company is investing $15 million to expand its egg products processing facility in Blackshear, Georgia, to include extended shelf-life liquid egg products.

During the quarter, Cal-Maine Foods, Inc. (NASDAQ:CALM) paid $73 million to shareholders through dividends. On January 9, the company declared a quarterly dividend of $1.49 per share, compared to its previous dividend of $1.02 per share. With a dividend yield of 3.75% as of February 11, CALM is one of the best debt free stocks that pay dividends.

Overall CALM ranks 4th on our list of the best debt free dividend stocks to invest in. While we acknowledge the potential for CALM as an investment, 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 CALM 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.