5 Dividend-Paying Stocks With Beaten-Down Prices

By Michael Vallo

You don't have to be an income investor to like dividend stocks, especially when they’ve been beaten down like Baker Hughes (BHI) and Oshkosh (OSK) have.

Don Wordell only buys dividend-paying companies, and yet the RidgeWorth Mid-Cap Value Fund (ticker: SAMVX) yields less than 1%. Wordell isn't in it for the payouts, he just likes the stability of firms that share the wealth with investors. "If they pay a dividend and have paid one through varying economic cycles, that speaks to the strength of the business model."

That focus on steady companies has seen the fund, which Wordell has managed since 2001, top 97% of its peers over the past 10 years, according to Morningstar. Year-to-date the $3.9 billion fund has returned 2.22%, slightly ahead of its category average.

Despite the recent bumpy ride for stocks, Wordell sees plenty of opportunities. "This pull back in energy prices is a massive stimulus for the economy," says Wordell. "I am as optimistic as I've been in a long time about the next 12 months." Wordell says healthcare and technology stocks are particularly attractive right now.

Barron's asked him to share his top 5 picks.

SanDisk: Shares of SanDisk (SNDK) have fallen more than 10% in the past month. But Wordell says the demand for the company’s flash memory is strong and growing. And after this Apple (AAPL) upgrade cycle SanDisk will be able to sell excess capacity at higher margins. "It's a great opportunity to own a really good company on a pullback."

Cigna Corp. and Aetna: Both Cigna (CI) and Aetna (AET) stand to benefit from continued improvement in the U.S. economy, especially increased hiring. "As long as you bring more people into the healthcare system and hiring continues, these are the companies that are going to manage the healthcare system."

Demographic trends are also a boon for health insurers as the aging population moves increasingly into Medicare Advantage, which is managed by private insurers. Enrollment in Medicare Advantage could jump to 20 million, according to the Kaiser Family Foundation, up from 15.7 million in 2014.

Wordell says the stocks, which both trade around 12 times forward earnings, could trade as high as 15 or 16 times forward earnings as their "earnings profiles become more consistent." And with healthy balance sheets and strong cash flow he expects health insurance companies to increase their dividends and buy back shares. "I believe these stocks are going to become the next generation's utilities."

Baker Hughes: The oil-services giant has been hammered in recent weeks as the price of oil has fallen more than $20 a barrel, in the last month. Wordell says the selloff has been overblown, and despite the drop oil companies have no plans to reduce production. Baker Hughes (BHI) will also benefit from accelerated demand for natural gas now that its 2010 acquisition of fracking outfit BJ Services is fully integrated. "This is a business that has gone through tremendous transformation, it's going to have industry-leading returns and margins over the next couple of years." Wordell thinks the stock has a 40-50% upside.

OshKosh: Shares of the specialty vehicle maker have been weighed down by sluggish commercial construction, but Wordell believes construction spending is picking up.

In an earnings report on Wednesday, equipment rental outfit United Rentals (URI) forecast improvement in commercial construction and said the company plans to spend more on equipment. Oshkosh (OSK) will benefit as rental companies increase the size of their construction fleets. Wordell adds that as state and local budgets improve, municipalities will start updating their work fleets with new garbage trucks, fire engines and other vehicles. At a recent $43.42, the stock is trading at just seven times EBITDA.

Shares of SanDisk have gained 2.8% to $89.02 at 2:24 p.m. today, while Baker Hughes has jumped 4.6% to $54.77, Cigna has risen 1.7% to $93, Aetna has advanced 1.3% to $79.14 and Oshkosh has climbed 4.1% to $45.20.