Whereas inventory valuations have decreased significantly throughout this yr’s market sell-off, some have gotten actually low cost. They appear to be glorious alternatives for long-term buyers with slightly bit of money to place to work.

Two absurdly low cost shares are Kinder Morgan (KMI -0.54%) and Medical Properties Belief (MPW 0.00%). All of them provide excessive dividend yields. That permits buyers to show a comparatively modest funding right into a beneficiant passive earnings stream. On prime of that, they provide a lot of upside potential from earnings progress and an enhancing valuation.

A bottom-of-the-barrel valuation

Kinder Morgan operates a diversified midstream enterprise consisting of pipelines, processing crops, storage terminals, and different vitality infrastructure. These property generate very regular recurring earnings backed by long-term fixed-rate contracts and government-regulated fee constructions.

Kinder Morgan expects to provide $2.17 per share of distributable money move this yr, about 5% above its preliminary price range, due to enhancing circumstances within the vitality market. With its inventory value lately round $18.50 a share, Kinder Morgan trades at about 8.5 occasions money move. That is absurdly low cost for an organization that produces very steady money move that ought to proceed rising sooner or later. This grime low cost value is why Kinder Morgan at present presents a 6% dividend yield. 

The corporate’s dividend will solely eat about half its projected money move. That is giving it the funds to proceed increasing its operations, repurchase its absurdly low cost inventory, and additional strengthen its stability sheet. The corporate is investing $1.1 billion to construct a renewable pure gasoline platform. It is also constructing out a few renewable gasoline hubs and has authorized a number of pure gasoline pipeline enlargement initiatives.

These investments in cleaner fuels ought to allow Kinder Morgan to proceed rising its money move sooner or later. Sooner or later, the market will give the corporate credit score for its progress potential. Within the meantime, buyers receives a commission effectively as they wait. For instance, a $250 funding within the pipeline large might produce $15 in annual dividend earnings. That earnings stream will doubtless rise as Kinder Morgan’s earnings broaden within the coming years. The corporate has already given its buyers a increase in every of the final 5 years.

Buying and selling at a wholesome low cost

Medical Properties Belief is an actual property funding belief (REIT) targeted on proudly owning hospitals. It leases them again to working firms below long-term contracts that offer regular rental earnings.

The healthcare REIT expects to generate $1.78 to $1.82 per share of normalized funds from operations (FFO) this yr. With its inventory value lately buying and selling at lower than $15 a share, it fetches round eight occasions its FFO. That is a wholesome low cost to the typical healthcare REIT, which trades at greater than 15 occasions 2022 FFO.

That absurdly low valuation is why Medical Properties Belief presents such a excessive dividend yield that at present clocks in at 7.8%. The REIT generates loads of rental earnings to cowl that dividend, with its payout ratio at present at lower than 80% of its FFO. That permits it to retain some earnings to fund new investments.

One other issue weighing on the REIT’s valuation is that buyers aren’t giving it any credit score for its minority investments in a number of hospital working firms that it typically acquires when buying the underlying actual property. The REIT has been working to showcase this hidden worth by monetizing a few of these pursuits. It has a large remaining portfolio, giving it a lot of upside potential.

It might take some time earlier than the market offers this REIT full credit score for its hospital portfolio. Buyers receives a commission very effectively whereas they await this to occur. A $250 funding would generate $19.50 in dividend earnings every year. That earnings stream will doubtless rise sooner or later because the REIT continues increasing its portfolio. It has already boosted its dividend for eight straight years. 

Flip your money into an earnings stream with a lot of upside potential

Kinder Morgan and Medical Properties Belief commerce at such absurdly low valuations that they provide very excessive dividend yields. That permits buyers to show a $500 funding right into a compelling passive earnings stream. On prime of that, they supply vital upside potential from earnings and dividend progress and the prospect of reaching the upper valuations they deserve. That mixture of return catalysts makes them nice shares for long-term buyers to purchase lately.