Updated 01/02/2017: Scroll down the page to find the current list of 13 debt-free S&P 500 companies. This list is updated on monthly basis. For a list of debt-free S&P 400 mid-cap companies, click here.
One easy way to own all 13 debt-free stocks is through a brokerage called Motif Investing. Using Motif Investing, you can create a “motif” which is like a mini-EFT. Add up to 30 stocks. Then purchase them all at once for just $9.95. Check out the special offer for new customers after the list of debt-free S&P 500 companies.
How much debt is on the balance sheet?
That’s one of the first questions I answer when I’m evaluating a stock. Companies borrow money for a myriad of reasons including to launch business lines, fund acquisitions, fund operations, and sometimes to fund distributions to shareholders.
Smart MBAs sit in office suites and perform elaborate spreadsheet wizardry to try and determine what is the optimal level of debt to maximize profits. It’s complicated. I took a corporate finance class in college and hated it.
But I can still look at a balance sheet and determine if I’m comfortable with the amount of debt held or not. Sometimes companies get too aggressive and think they can borrow lots to make more money. But business and market conditions can change.
Borrowing can get out of hand. When there isn’t enough money to cover the debt payments, that’s when bankruptcies occur.
But nobody ever went bankrupt while debt-free.
An Updated Resource for Risk-Averse Investors
A while back I wrote a blog post called 6 Debt-Free Dividend Growth Stocks. Based on feedback from that post and subsequent search inquiries, I’ve learned that investors want to know which stocks belong to this exclusive group.
Debt-free companies are some of the safest for investors because there are no debt payments hindering cash flow, and the risk of going under due to debt default is obviously zero.
However, the perception to some is that if a company doesn’t borrow money, it’s not taking enough risk to spur growth and is, therefore, falling behind competitors. Especially with today’s low rates.
If your investment risk tolerance is low, this list may be an attractive starting point for further investment research.
There’s been a lack of resources to easily identify these companies where the list is consistently updated. Most existing lists have become outdated or were never complete. My list will stay updated.
The list of companies has been shrinking. Many that were debt-free have fallen to the temptation of low-rate money. This could be a good thing.
Apple (AAPL) and Microsoft (MSFT) are two high-profile companies that were debt-free for a very long time but are no longer. Perhaps we should applaud companies for taking advantage of low rates in order to grow their businesses.
But not taking advantage of low rates doesn’t mean the company is bad. Conservative, maybe. Or maybe they just have all the capital they need to grow.
Thor Industries (THO), a recreational vehicle manufacturer, is one company I own in part because of its zero-debt balance sheet. They’ve managed to acquire a slew of brands using cash in the past decade.
Due to investor demand for a current and updated list of debt-free S&P 500 companies, I’ve compiled this list and plan to update it monthly.
The number of companies is few, just 13 out of the largest 500 US based companies. That’s 2.6% of companies in the index.
Of course, this list doesn’t tell the whole story. Some companies have low amounts of debt and more cash on hand to cover the debt if needed. They may also be worthy of consideration. But I’m only covering completely debt-free companies for now. And I’m only covering the S&P 500 index on this page.
If you want even more stocks, I’ve compiled the equivalent list for the debt-free S&P 400 mid-cap companies too. Follow that link and you find another 21 debt-free companies.
Before we get to the table of 13 stocks, I’ll explain how I identified these stocks.
To find the list of debt-free S&P 500 stocks, I played with various stock screeners and filtering tools around the internet to find tools with access to the necessary data sets. Few were sufficient. Turns out, the best screener I could find was in my own TD Ameritrade account.
My screen had two constraints:
- Index = S&P 500
- Debt to Capital = 0%
Once I screened the debt-free companies, I cross-checked each balance sheet via Yahoo Finance to verify the companies had no long or short-term debt.
The table in the following section contains the list of 13 stocks and some basic information including market capitalization, PE ratio, dividend, and yield. Only 6 stocks on the list pay a dividend.
Keep in mind, this list is not a recommendation to buy or sell these stocks. For investors that value conservative management or a debt-free lifestyle, this may be a starting point to add positions to your portfolio.
As always, further research should be conducted before buying or selling.
If you see any discrepancies in this list or believe another company belongs or one should be ousted, please contact me or add a note in the comments section.
Update 11/27/2016: Removed PAYX. Added URBN.
Buy all the Debt-Free S&P 500 Stocks for One Low Price
You can attempt to buy each debt-free S&P 500 company one at a time. You’ll pay a lot of fees to accomplish this. I prefer a more efficient method.
I’m a big fan of the online broker Motif Investing. With Motif, you can create your own “motif” which is a sort of customized mini-ETF. Then you can buy all the stocks in the motif at once for just $9.95. Up to 30 stocks. So you can make your own Debt-Free Stocks motif and buy them all in one transaction.
With Motif Investing you can also buy individual stocks for just $4.95 per trade. Great price.
Motif Investing is also planning to offer individuals access to IPOs whenever that market recovers. That’s why I first signed up, but I’ve found I’m a big fan of the overall user interface.
There’s a great deal right now on new accounts. Click the banner below to learn more.
List of Debt-Free S&P 500 Companies
Update 01/02/2017: Removed PAYX. Added URBN.
For fun, I looked on Morningstar for the average annual total return for the 10-year period ending 09/20/2016 for each of the 13 stocks. Then compared the numbers to the S&P 500 index performance over that time.
The numbers look like this:
Symbol Total Return CMG 22.87% EXPD 2.03% FB 39.40% (3-yr) FFIV 16.39% GRMN 3.45% ISRG 21.26% LLTC 7.62% MNST 23.37% PAYX 7.26% PYPL 20.57% (1-yr) SWKS 29.75% TROW 5.75% ULTA 27.25% (5-yr) Average 17.46% S&P 500 7.18%
The average return for all 13 stocks was 17.46%. Excluding Facebook, Paypal and Ulta (not public for 10 years), the return was 13.98%.
The average annual return for the S&P 500 index over the same time period was 7.18%.
Food for thought.
This post isn’t meant to spur debate over whether it’s smart for a company to borrow or not. Each company has different business models and capital needs in order to operate.
My college corporate finance grade was one I want to forget. But I still have a personal preference towards companies with relatively low debt levels, although not all of my holdings fit that description.
I’ve owned heavily indebted companies and watched the value of the stock price plummet. I’ve also owned heavily indebted companies that pay me dividends year after year without issue.
Some investors may value a completely debt-free company over a debt-laden stock as a matter of investment safety or even personal or religious values. Use this list of debt-free S&P 500 companies however you like.
Disclosure: The author is long AAPL, MSFT, THO, CMG, TROW
Featured photo credit: iStock.com/marekuliasz