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3 Big Reasons to Buy this Small Cap with a High Dividend, Low Beta, and No Debt

by
December 2, 2013 12:56 pm
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Sometimes the headline says it all.

Espey Manufacturing and Electric Corp. (NYSE: ESP) is a high yield, low beta small cap with no debt. Those are three very compelling reasons for long term investors to consider the stock. It also has superior features to much larger firms in its sector such as Corning (NYSE: GLW), TE Connectivity (NYSE: TEL), and Amphenol Corporation (NYSE: APH).

Based in Upstate New York in Sarasota Springs, Espey Manufacturing and Electronics Corp. designs power electronics and manufacturing equipment, primarily for military and industrial applications in the United States. It has been a good year for the shareholders as Espy Manufacturing is up more than 30%. As investors buy for the future, there is much to like about the potential total return for the company.

Although not significant this year due to the bull market, Espey Manufacturing has an above average dividend. The dividend for a member of the Standard & Poor’s 500 Index averages about 1.9%. For Espey Manufacturing, the dividend is 3.13%. There was a recent special dividend of $1.00. By contrast, the dividend for Corning is 2.35%. For TE Connectivity it is 1.9%. Amphenol Corporation pays a dividend of less than 1%.

While the dividend is high for Especy Manufacturing, the beta is very low.

As detailed in a previous article on Benzinga, “Yes, Virginia, There are High Rewards from Low Risk Stocks,” a study by Russell Investments found that low beta equities have the highest low term returns. With a beta of 0.52 with the market average being 1, Espey is one such stock. Corning, which in terms of market capitalization is more than 300 times larger, has a beta of 1.26. TE Connectivity has a beta of over 2.

Even lower that its beta is the debt on the balance sheet of Espey Manufacturing and Electronics Corp.

There is no debt. That makes the dividend component even stronger for Espey; as no cash is diverted to paying creditors. Amphenol Corporation has a debt-to-equity ratio of 0.70, which is high as it means that it took 70 cents of borrowing to create every one dollar of equity. As a result of having a clean balance sheet, the cash position is strong for Espey with a very favorable a very favorable quick ratio and current ratio.

Espey Manufacturing is trading about 5% from its 52-week high of $33.89. With a short float of just 0.27%, there are not many betting that it will fall. The high yield, low beta, and zero debt balance sheet provides plenty of reasons to expect solid long term total returns from Espey Manufacturing and Electronics.


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