4 growth and income favorites for prudent speculators

These dividend-paying stocks appear undervalued relative to their long-term appreciation potential.

By TheStockAdvisors Oct 19, 2011 8:43AM

By John Buckingham, The Prudent Speculator

It is nice to see the renewed interest in income, as we can’t forget that dividends and their reinvestment have long been substantial contributors to the total return on equities.

Here we highlight four dividend-paying stocks that we believe are undervalued relative to their long-term appreciation potential: Hudson City Bancorp (HCBK), Merck & Co. (MRK), Ship Finance International (SFL) and Whirlpool (WHR).

Hudson City is the sixth-largest thrift in the U.S. Its subsidiary, Hudson City Savings Bank, offers jumbo mortgages to affluent customers while maintaining operations in nine of the country’s wealthiest markets.

Hudson has relatively conservative underwriting standards, a history of profitability and industry-leading efficiency ratios. Many of its clients have strong credit scores and make large down payments.


Post continues below:

The combination of high income, good credit and substantial homeowner equity helps ensure that borrowers are less likely to default, and that losses are limited when defaults occur. Shares currently offer a 5.7% dividend yield.

Merck makes pharmaceutical products to treat conditions in a number of therapeutic areas, including cardiovascular disease, asthma and osteoporosis.

The company also has a substantial vaccine business and is further diversified with animal health and consumer products divisions.

We like that Merck generates strong free cash flow, is proactively seeking opportunities to cut costs and has a drug pipeline with solid potential. Shares are attractively valued and carry a dividend yield of 4.6%.

Spun off from tanker operator Frontline in 2003, Ship Finance owns an international fleet of crude oil tankers, dry bulk carriers and drilling rigs.

Instead of taking on the challenge of operating the assets in its fleet, the company secures medium and long-term charters with customers that include base-rate and profit-sharing components.

SFL has a fixed-rate charter backlog totaling close to $7 billion and no major needs for refinancing.

The charters provide a secure source of cash flow which in turn provides support for a whopping 12% dividend payout.

Whirlpool is the world’s leading producer of major home appliances. While its North American operations continue to struggle, Whirlpool’s growing international presence is the key driver behind our positive take.

International sales have grown from 38% of the business in 2005 to 50% today. Much of this growth is being captured in emerging markets such as China, Brazil and India.

The firm generates strong free cash flows and has an ability to repeatedly introduce innovative, premium-priced products. Inexpensively priced, WHR sports a yield of 4.0%.

TheStockAdvisors.com​​ is a free website that highlights stock recommendations and market commentary from leading financial newsletter advisers.



Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

125 rated 1
267 rated 2
455 rated 3
612 rated 4
682 rated 5
695 rated 6
632 rated 7
472 rated 8
279 rated 9
147 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.