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Microsoft Corporation (MSFT), Pfizer Inc. (PFE), and Northrop Grumman Corporation (NOC): Three Good Companies With Unloved Stocks

The co-managers of Guinness Atkinson Inflation Managed Dividend Fund (GAINX) describe Microsoft Corporation (NASDAQ:MSFT), Pfizer Inc. (NYSE:PFE), and Northrop Grumman Corporation (NYSE:NOC) as “good companies that are currently unloved.” That could mean a buying opportunity for long-term dividend investors.

Not Your Typical Dividend Approach

Although the fund is too young to determine if it has lived up to its objective, it takes an interesting approach to finding dividend stocks. For example, management first screens for “high quality companies that have generated top quartile returns on capital consistently over the previous 10 years.”

After that point, it looks at dividend yields, histories, and payout ratios. Essentially, good company comes before good yield. In a recent update, the managers note that it has become harder to find good investments. However, they pointed to a few names that they believe still have long-term appeal.

The Tech Giant

Microsoft Corporation (MSFT)

The big knock against Microsoft Corporation (NASDAQ:MSFT) has been its lack of exposure to the mobile market. The company, however, is slowly starting to silence that complaint. For example, the maker of Windows, Xbox, and Office has been pushing into the mobile phone space with its Windows Mobile operating system. That involved partnering with Nokia Corporation (ADR) (NYSE:NOK) on the Lumia phone. So far, the OS portion of the phone has been well received.

Microsoft Corporation (NASDAQ:MSFT) has also brought out its own tablet computer, shifting uncharacteristically into the hardware space. The Surface hasn’t sold as well as some industry watchers might like, but it puts the company in the tablet game. And, Windows 8 marries the company’s mobile and personal computer OS systems, creating an ecosystem in which happy Windows users can exist without jumping ship to an Apple Inc. (NASDAQ:AAPL) or Google Inc (NASDAQ:GOOG) Android based product.

The latest win was getting Apple to use the Bing search engine for iPhone’s Siri digital assistant. In fact, the shares have started to head higher as investors realize that Microsoft Corporation (NASDAQ:MSFT) might actually have a shot in the mobile market after all.

Despite a dip during the 2007 to 2009 recession, the top-line has been on a growth path for the last decade. While earnings fell between 2011 and 2012, Microsoft Corporation (NASDAQ:MSFT) still earned $2.00 a share. An around 2.7% dividend yield, a decade of regular annual dividend increases, and the opportunity to join the mobile revolution could spell upside for long-term investors.

The Military/Industrial Complex

Northrop Grumman Corporation (NYSE:NOC) has been changing with the changing face of military conflict. It has refocused around key offerings like military services, manned aircraft, and drones. Some of its big products are the Global Hawk unmanned reconnaissance system, B-2 stealth bomber, F-35, and the Minuteman III Intercontinental Ballistic Missile.

Notably, around 40% of the top-line comes from aerospace sales. Air supremacy is an increasingly important aspect of military conflicts, which puts this air specialist in good position to prosper with both manned and unmanned products.

Although the company’s top-line has fallen in each of the last two years, its streamlining efforts have led to notably improved margins and rising earnings. The shares yield around 2.9% and have run up near all-time highs. However, it is well positioned in a competitive industry, even if budget cuts trim the U.S. military budget. And it has increased its dividend each year for a decade.

Refocused on Drugs

Pfizer Inc. (NYSE:PFE) is a changed company, too. For example, over the last few years it has sold its nutrition business to Nestle and spun off its animal health division. The goal was to refocus around its core drug business. It bolstered that business with the purchase of Wyeth.

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