Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Crown Crafts, Inc. (CRWS), World Wrestling Entertainment, Inc. (WWE): No-Debt High-Yield Alternatives

Loan covenants on high yield debt are starting to loosen again. By some measures, the legal protections for junk bond purchasers are nearing the low levels of 2008. That’s a bad sign for investors. It might make sense to buy higher-risk equities that have no debt on the balance sheet, like Crown Crafts, Inc.(NASDAQ:CRWS), World Wrestling Entertainment, Inc. (NYSE:WWE), andNutriSystem Inc. (NASDAQ:NTRI).

World Wrestling Entertainment, Inc. (NYSE:WWE)

A PIK Problem

Payment in kind (PIK) is a feature of a bond that allows the issuer to pay interest payments by issuing more bonds instead of using cash. Barron’s recently highlighted that 2012 saw the most issuance of PIK bonds since 2008, with another $2.4 billion in PIK bonds issued so far this year. Worse, more PIK bonds than ever before were issued in 2012 with the intent of paying dividends to equity owners. That’s another bad sign since that money wasn’t used for the betterment of the companies.

With bond yields at historic lows, it doesn’t make much sense to buy debt that is increasingly being structured for the benefit of the company and not the debt holder. An alternative is to buy equity in higher-risk, publicly-traded companies that have no debt. While there are still issues to consider, at least the equity deck isn’t stacked against you.

A Baby Company

Crown Crafts, Inc.(NASDAQ:CRWS) makes baby products, including bedding, bibs, and blankets. It’s a tiny company, with a market cap of around $60 million. However, its customers include giants like Wal-Mart Stores, Inc. (NYSE:WMT), Target Corporation (NYSE:TGT), and Toys R Us. And it has Licensing relationships with companies like Disney and Sesame Street.

The company’s top and bottom lines have been range bound over the last four years or so. However, the dividend has grown from a token $0.02 for the entire fiscal year in 2010 to $0.14 in fiscal 2012. It is currently at a run rate of $0.32 per year ($0.08 per quarter). Although that amounts to more than half of the company’s fiscal 2012 earnings, a debt-free balance sheet means it can be easily afforded.

Although U.S. births are trending lower, Crown Crafts, Inc.(NASDAQ:CRWS) has a solid market position and plenty of financial strength to keep paying dividends even if births continue at a low level for a while. And, if birthrates pick up again as the economy improves, financial results would pick up, too. The company’s dividend yield is around 5%, backed by a dividend that’s grown over the last few years.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.