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The Gist

These five stocks are from S&P 500 U.S. companies with market caps of 2 billion or better which pay dividends yielding nearly 10% on average. What's more, these stocks are trading on average 35% below their 52-week high and have 31% upside potential based on their consensus mean price targets.

Most of these stocks have recently been downgraded or have seen negative earnings results and are down significantly. Consequently, they may present buying opportunities. There may be more volatility in front of us with the myriad of issues currently confronting the market, yet these hurdles may be the spur that provides a good entry point to start a position in these high-yield dividend-paying opportunities.

One reason to invest in dividend-paying stocks is they may be the investment of choice to fund the retirement of many Baby Boomers. This may create additional demand for high yield stocks like the ones covered in this article.

These dividend-paying stocks have the potential for both capital gains and income production. Most are out of favor and trading near the lows for the year. This will give them yet another hedge against inflation. You have to buy low to sell high. Stocks are never at their lows when analysts are upgrading them and the news regarding the stock is positive.

The Goods

In the following sections, we will perform a review of the fundamental and technical state of each company to determine if this is the right time to start a position. The following table depicts summary statistics and Tuesday's performance for the stocks.

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Cliffs Natural Resources Inc. (CLF)

Cliffs pays a dividend with a yield of 7.08%. The company is trading 60% below its 52-week high and has 59% upside potential based on the consensus mean target price of $48.50 for the company. Cliffs was trading Tuesday for $30.48, down over 13% for the day on a downgrade from Goldman Sachs.

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Fundamentally, Cliffs has several positives. The company has a forward P/E of 8.98. Cliffs is trading for a 20% discount to book value. EPS is up over 50% this year. The company has a net profit margin of 16.28% and the current ROE is 15%.

Technically, Cliffs looks weak. The stock recently took a serious nose dive after missing earnings. Cliffs reported third-quarter results that missed analysts' estimates as the price of steelmaking raw-materials dropped. Then Tuesday the stock took another dive based on the recent downgrade.

Goldman Sachs downgraded Cliffs shares to Sell with a $25 price target down from $33. The firm says,

CLF's decision to delay its Bloom Lake expansion and curtail some operations underscores the disadvantages for high cost producers like CLF in a relatively weak iron ore market. The firm also expects lower production volume in Canada will translate into higher costs.

The significant dividend yield combined with the fact that central bank printing presses around the globe are working overtime make the risk/reward ratio on this stock favorable. Furthermore, there are rumors of Cliffs being a potential takeover target. Nonetheless, I don't buy stocks based on take out rumors. I say use the $25 price target set by Goldman as your entry point. The risk/reward at that level seems favorable at that level.

CenturyLink, Inc. (CTL)

CenturyLink pays a dividend with a yield of 7.65%. The company is trading 12% below its 52-week high and has 18% upside potential based on the consensus mean target price of $44.81 for the company. CenturyLink was trading Tuesday for $38.07, up slightly for the day.

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Fundamentally, CenturyLink has some positives. CenturyLink's forward P/E ratio is 14.25 and the company is trading at 1.2 times book value. The company's revenue growth has surpassed the industry average of 7.4%. Profits and revenues are up and the company has raised guidance. EPS is up nearly 100% quarter over quarter.

Technically, CenturyLink seems to be consolidating just below the 200-day sma after a precipitous drop. In my last article on the stock I recommended waiting to start a position until the stock pulled back to the 200 day sma. That is essentially what has happened. I posit the stock will continue to rise based on improving guidance and fundamentals. I believe you are safe starting a position at this level.

Frontier Communications Corporation (FTR)

Frontier pays a dividend with a yield of 9.07%. The company is trading 16% below its 52-week high and has 17% upside potential based on the consensus mean target price of $5.13 for the company. Frontier was trading Tuesday for $4.40, down slightly for the day.

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Frontier has some fundamental positives. The company is trading for slightly over book value, 87% of sales and has a forward P/E of $16.96. The company's gross margin is 91.03%. The stock is trading for 18 times free cash flow.

Technically, Frontier has been in an uptrend since May. The golden cross was achieved at the beginning of September. This is a very bullish development. This is only the second time the stock has pulled back and tested the bottom of the trend channel this year. The last time it did it rallied significantly afterward.

Frontier is slumping after receiving a downgrade to Sell from Goldman. Goldman argues the carrier's cost structure is deteriorating thanks to a mix shift to lower-margin services.

Nevertheless, Frontier recently announced earnings that met top and bottom line estimates, yet the stock has still sold off. On a positive note, Frontier's 2012 free cash flow guidance was unchanged at $900M-$1B. I see the recent pullback as a buying opportunity and the 9% dividend provides some insurance. I like the stock here, but if you want to be extra cautious, wait for the stock to test support at the 200-day sma approximately 7% below the current level prior to starting a position.

Pitney Bowes Inc. (PBI)

PBI pays a dividend with a yield of 13.51%. The company is trading 38% below its 52-week high and has 39% upside potential based on the consensus mean target price of $15.25 for the company. PBI was trading Tuesday for $11.00, down almost 1% for the day.

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PBI has some fundamental positives. The company is trading for 44% of sales and has a forward P/E of 5.87. The company's net profit margin is 8.78%. According to Finviz.com, the company has a ROE of 935%. The company is increasing profit margins and cash flow from operations is healthy. The stock is trading for 15 times free cash flow which is presumed to be undervalued.

Technically, PBI has been trading sideways since May and took a nose dive after missing earnings estimates on November 1st. The stock is technically weak currently.

PBI reported third quarter 2012 earnings per share of 38 cents, lower than the Street's expectations. I see this as a buying opportunity. Cash flow and net income have been trending up for the last few years. The cash flow seems adequate to cover the dividend. The only threat is a series of debts that will be maturing over the next several years. Look for a trend reversal prior to starting a position in the stock. The resolution of the fiscal cliff issue could be the catalyst this stock needs.

Windstream Corporation (WIN)

Windstream pays a dividend with a yield of 12.06%. The company is trading 29% below its 52-week high and has 24% upside potential based on the consensus mean target price of $10.25 for the company. Windstream was trading Tuesday for $8.29, down nearly 1% for the day.

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Windstream has some fundamental positives. The company is trading for approximately one times sales and has a forward P/E of 14.80. Sales are up 50% quarter over quarter. The company's gross profit margin is 52.60%. The company has a ROE of 13%. The company is increasing profits margins and cash flow from operations is healthy.

Technically, Windstream is in bad shape. The stock was in a solid uptrend from June until late September but then began to crater. The stock took a major nosedive after missing earnings expectations, albeit by just a hair.

Windstream missed EPS by one cent yet reported revenues in-line. Goldman subsequently downgraded Windstream to a Sell citing margin pressure. The stock is currently testing support at the bottom of the long-term downtrend channel. If support here can hold I see this as an excellent buying opportunity.

The Bottom Line

Whenever major sell offs occur in the market or in specific stocks it is always prudent to review your current positions and assess the stocks on your watch list for potential buying opportunities. Market corrections often provide the opportunity to purchase stocks in solid companies at a discount price.

Most of these stocks are out of favor and pay hefty dividends. These facts coupled with the Fed's announcement that rates will remain at ultra-low levels for at least the next two years leads me to believe these stocks are a better hedge against inflation than fixed income instruments such as bonds and CDs. Factor this in with the statistic that historically dividend-paying stocks have outperformed non-dividend-paying stocks and you have a recipe for outstanding returns.

The question is… is now the time to buy? Are these stocks value trades or traps? I posit at this level these stocks are potential buying opportunities. There may be more downside from here so take your time and layer in to any position, but don't take my word for it. Do your own due diligence and decide for yourself.

Source: 5 Buying Opportunities With 10% Yields On Average Worth A Look

Additional disclosure: This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment decisions.