Strong Companies That Can Make the Payout

One of the more interesting names on the list of debt-free dividend payers is in the worst possible industry right now. Gentex (GNTX - commentary - Cramer's Take) supplies automatically dimming rear-view mirrors to the automobile industry. With all the talk of bailouts, cutbacks and collapses in that industry, many auto parts suppliers could be facing bankruptcy next year.

However, if you owe no money, you cannot go bankrupt -- Gentex has plenty of cash on the books and will be a survivor in the distressed industries. In addition, the company has been cutting exposure to the North American market while building market share in Asia and Europe. Gentex will feel the pain of the auto recession, but not to the degree of leveraged auto suppliers. Toyota (TM - commentary - Cramer's Take) and BMW are two of its top customers and 70% of key mirror sales are outside the U.S. Gentex also is introducing new products such as rear-view cameras and SmartBeam high-beams to diversify and build product lines.

This is one of those stocks you buy in market downturns and hold until the recovery happens. As a bonus, you get paid 5% to wait.

The soft insurance market and weak economy in California, its major marketplace, have hurt results at Mercury General Insurance (MCY - commentary - Cramer's Take), but the stock has held up well, due in part to its 5.5% dividend yield and rock-solid balance sheet. The company is one of the relative few that have raised its dividend payout this year, increasing 11.5% starting with the September payout. Traditionally, the company is a strong underwriter focusing on good business instead of higher-premium substandard business. As a result, Mercury has had a combined ratio under 100 for the past 10 years and also has raised dividends every year for the past 15. This is a conservative, well-run company that should be in most blue-chip and dividend-oriented portfolios.

Mercury is one of several insurance stocks I like to make the debt-free dividend list, which includes Erie Indemnity (ERIE - commentary - Cramer's Take) and American National Insurance (ANAT - commentary - Cramer's Take). Galveston, Tex.-based American National has had catastrophic losses from hurricanes this year, with both Ike and Gustav hitting its key markets, but the company has a long history of profitability and has been one of my favorite stocks for years. At half of tangible book and a generous 4.4% dividend, it will be back in my portfolio on the next market downdraft.

As usual, I am going to run out of room but one last company you might look into for playing a tech rebound next year is integrated circuit-maker Analog Devices (ADI - commentary - Cramer's Take), which is debt-free and also recently increased its dividend. The stock currently yields 4.2% while the company is buying back stock. Analog Devices has over $1 billion in cash on the books and will survive the weak economy.

Combining the immediate payout of dividends with the safety of debt-free balance sheets makes sense for long-term nesters in this market. As always, buy on down days and move slowly to average into positions.

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At the time of publication, Melvin had no positions in the stocks mentioned, although positions may change at any time.

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.