4 Debt Free Stocks With High Dividend Yield Of More Than 5%: Should You Buy?

The current market correction is largely led by the rate hike regime followed by global central banks to curb the heightened inflationary pressure. While the similar volatility range is expected to continue for some more time, debt free stocks with good dividend yield can be good bets right now.

Why debt free companies fare better than the leveraged companies?

This is because debt free companies do not have to service debt so their cash outflow via interest is negligible and hence can maintain their profitability. Also, during recessionary situation or economic downturn, lower debt to equity ratio marks the firm's resilience. Further because of low or nil interest outgo against the borrowings, with more cash at their disposal, debt free companies can deploy the excess funds either for reinvestment in the business or distribute the same as dividend to the company's shareholders.

4 Debt free companies with high dividend yield of over 5%

Debt free stock	Dividend yield	CMP
Castrol India	5.46%	100.6
Swaraj Engines	5.40%	1480.3
Balmer Lawrie Investments	10.45%	363.75
Bajaj Consumer	5.58%	143.3

Castrol India:

The MNC company is a market leader in the lubricants space in the country. The company provides coke and refined petroleum products. In the March ended quarter of Fy22, the company's net profit increased sequentially to Rs. 228.4 crore, nevertheless possibly due to the rising input cost pressure was severed YoY. During the same quarter, a year ago, company's net profit was at Rs. 243.6 crore. The zero debt company is also high on dividend yield. Considering the dividend pay out of Rs. 5.5 for Fy22, the dividend yield comes out to be 5.46% which is a pretty decent dividend yield and the stock is a consistent dividend payer. Furthermore, as the stock trades very close to its 52-week low price of Rs. 99.05, it can be a good bet at the current time. Motilal Oswal has given a 'Buy' recommendation on the stock for a target of Rs. 146.

Swaraj Engines:

Swaraj Engines Limited is engaged in manufacturing engines for fitment into Swaraj tractors, which is manufactured by Mahindra & Mahindra Ltd. (M&M) at its Swaraj Division. This is another debt free concern with high dividend yield of 5.4%. The company's financials look much convincing with total revenue on a consistent increase from Fy2019 to Fy 2022. Also, net income and EPS at the firm has been increasing. For Fy22, the company's net income and EPS stood at Rs. 109.47 crore and Rs. 90.17, respectively.

Balmer Lawrie Investments:

The company functioning under the aegis of the Ministry of Petroleum & Natural Gas, Government of India is a NBFC concern and holds equity shares of its subsidiary Balmer Lawrie and Co. As per the RBI stipulation mentioned on the company's website, the Company shall divest its shareholding and wind up its business on completion of disinvestment of shares of Balmer Lawrie & Co. Ltd. So, as the future course of action of Balmer Lawrie Investments is relatively known and the company does no business except to hold 105679350 equity shares of Rs.10/- each of Balmer Lawrie & Co. Ltd, we cannot really consider into buying it.

Bajaj Consumer Care

The personal care entity is engaged in the manufacturing and trading of cosmetics, toiletries and other personal care products. The company is almost debt free with a good return on equity (ROE) track record. 3 Years ROE is placed at 27.96%. Also, the company has this far maintained a healthy dividend payout of 50.54%.

Going by its financials, there has been witnessed a decline both in revenue from operations and net profit for the quarter ended March 2022 on a YoY and sequential basis. This may be due to input cost pressure and the low demand that the company may be facing amid the economic fall out. So, as the near term outlook shall remain more or less the same, we can avoid the stock and not buy into it.

Conclusion:

So, as the zero debt and high dividend yield can make a stock a good buy in the rising interest rate scenario, we can definitely buy into the stocks of Castrol India i.e. valued reasonably and is trading with a TTM PE of 13.52, while the sector PE is 13.25. Also, one can buy into Swaraj Engines given the way the company is making progress on its financials and for its high dividend yield and avoid the stocks of Balmer Lawrie Investments and Bajaj Consumer.