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Mueller Water Products (NYSE:MWA)

  • Stock price: $4.06
  • Dividend: 2.90%

Mueller Water provides water infrastructure and flow control services. The popular water investment is owned by Glenview Capital Management whose recent shareholder letter contained bullish opinions about Tyco International (NYSE:TYC) and Expedia Inc (NASDAQ:EXPE) which subsequently made positive headlines in the ensuing weeks.

Mueller could have secular tailwinds at its back, but in the last two three years, both revenues and operating cash flows have declined. In addition, Mueller has nearly $692 million of debt on the balance sheet.

Nokia Corporation (NYSE:NOK)

  • Stock price: $8.74
  • Dividend: 4.70%

The world's largest cell phone manufacturer has struggled against competition from Samsung (OTC:SSNLF), Apple (NASDAQ:AAPL) and Android-based (NASDAQ:GOOG) phones. The company recently agreed to a potentially game changing venture with Microsoft (NASDAQ:MSFT) where Nokia will manufacture Windows 7 based phones and Microsoft will subsidize upfront research and development costs. In the meantime, Nokia will continue to develop Symbian based phones to minimize any revenue gaps going from Symbian to Windows 7.

The Microsoft deal is good because it gives Nokia more options, but it is not without risks considering Microsoft's previously failed attempts to break into the smart phone market. While Nokia completely halted their share buyback program in 2009 and 2010, their dividend could be safe in the near term because of their significant excess cash and short term investments. But investors should keep in mind that after eliminating the roughly $3 billion per year share buybacks, any future shocks could result in a large dividend cut.

Going forward, we are intrigued by Nokia's cheapness and its ability to continue generating revenues as they develop their Windows phones, but we prefer to stay on the sidelines until we get further clarity on the company's margins trend.

Frontier Communications (NASDAQ:FTR)

  • Stock price: $8.08
  • Dividend: 9.70%

The telecommunications company provides phone and internet services to customers in 27 states. The company focuses on rural areas. They significantly expanded their service and footprint following an $8.6 billion agreement with Verizon (NYSE:VZ) in 2009. FTR's high operating cash flow and high dividend yield make it an interesting stock.

Wendy's/Arby's Group (NASDAQ:WEN)

  • Stock price: $4.81
  • Dividend: 1.50%

The long struggling fast food chain is controlled by Nelson Peltz's Trian Partners. In 2007, the stock traded above $20 per share but more recently it has remained statistically cheap. Wendy's trades at a price/sales of 0.59 as compared to McDonald's which has a price/sales of 3.32. This company seems leveraged to any meaningful improvement in operation.

Going forward, the company would benefit significantly by expanding their franchise operations from the current level of around 10% of sales. If the company aggressively pursues such strategy, investors should pay close attention, otherwise the stock will remain on our watchlist.

EarthLink (NASDAQ:ELNK)

  • Stock price: $8.06
  • Dividend: 7.40%

The once popular internet service provider has remained operating cash flow positive since 2006 despite experiencing a 50% drop in revenues over the same time frame. Despite the poor trends, the company still had 1.636 million subscribers at the end of 2010 with average revenue per user (ARPU) stable at $21.

The stock is cheap, but their rapid customer attribution is good a reason for the valuation. We think there are better investment opportunities.

Stewart Enterprises (NASDAQ:STEI)

  • Stock price: $7.95
  • Dividend: 2.50%

Stewart Enterprises provides funeral and crematory services in the US through 218 funeral homes and 140 cemeteries. The business is generally stable with low margins, but the company also has $315 million in long term debt. Stewart Enterprises trades with a forward P/E of 16.91.

GFI Group Inc (NYSE:GFIG)

  • Stock price: $4.80
  • Dividend: 4.30%

The international brokerage provides data, execution, trading support and wholesale brokerage services. The company has a forward P/E of 10.91 and a price/book of 1.21. The company currently trades at 6x 2008 peak earnings and revenues.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in FTR, NOK, WEN over the next 72 hours.

Source: 7 Low Priced Dividend Paying Stocks