Merrill Lynch Has 4 Very Contrarian Stocks to Buy That All Pay Gigantic Dividends

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The higher the market goes, the more it makes sense to look at stocks ideas that are considered out-of-favor or contrarian, and the reason is pretty simple. Stocks that are truly bad investments usually have a knack of going to zero or very low single digits and never rebound. Out-of-favor companies are shunned for a variety of reasons, but often those reasons are short-term issues. Products need to be updated, bad headlines, big management changes and more are usually the culprits.

We screened the Merrill Lynch research database looking for stocks that had a Buy rating and paid solid dividends. We also looked for the companies that, at least so far, had not cut their dividends .We found four that range from very aggressive to conservative, and they all make sense for growth and income accounts.

Frontier Communications

Many top analysts have remained very positive on this rural local exchange carrier. Frontier Communications Corporation (NASDAQ: FTR) offers residential services, such as fiber-to-the-home and fiber-to-the-node broadband, as well as traditional copper-based broadband products; and commercial services, including Ethernet, dedicated Internet, multiprotocol label switching, time division multiplexing, data transport services, and optical transport services.

Frontier also provides Frontier Secure suite of products for computer security, cloud backup and sharing, identity protection, equipment insurance and technical support. Its unified messaging services include call forwarding, conference calling, caller identification, voicemail and call waiting services. It also offers long distance network services and packages of communications services.

The company reported solid numbers in the first quarter, but the second quarter print was messy and the stock has been hit hard. In addition it replaced the chief financial officer. The company has guided in line to ahead of Wall Street estimates on post-Verizon deal cash flow. Frontier is the highest yielding non-energy component in the S&P 500, and most big firms see the dividend easily covered by current cash flow.

Frontier investors receive a huge 10.17% dividend. Merrill Lynch has a $7.50 price target on the stock. The Wall Street consensus target is $5.85, and shares closed Wednesday at $4.13.

General Motors

This company is in the automobile sector but looks to be very inexpensive at current levels. General Motors Co. (NYSE: GM), despite all the recall troubles and litigation issues, has hedge funds and mutual funds continuing to stick with the company, as many view the stock as very undervalued. GM trades at an incredible 5.42 times estimated 2016 earnings. The company, like Ford, has benefited from incredible sales in China to boost revenue. GM invested heavily in China decades ago and grabbed a big chunk of what is now the world’s largest auto market.

Long-term patient investors that can look beyond current issues may stand to make outstanding money on the auto giant, especially as low gasoline prices continue to push new buyers into showrooms. The stock was hit hard in the summer when Ford missed estimates and much of the blame was placed on incentives, which have been much lower at GM. While shares have rebounded, they are still cheap.

The company reported very solid second-quarter earnings recently, and with gas prices staying at the lowest levels in years, and GM producing some of the best new models in years, the future for the battered stock looks very good. The analysts also feel the company is well prepared for the next downturn.

GM investors receive a 4.73% dividend. The Merrill Lynch price target is $43. The consensus target is set at $36.72. Shares closed Wednesday at $32.11.