Join me as we take a trip off the beaten path in search of the market's cheapest high-yield dividend stocks that are worthy of consideration in your retirement portfolio. To be sure, there are well-known names that are offering high yields right now -- General Motors, Ford, AT&T, and Verizon to name a few -- all of which are yielding over 4%.

Rural road leading to a rainbow

image source: Getty Images.

But today, I'll introduce you to two smaller stocks that I believe are trading at a significant long-term discount, and that could enable you to snatch shares now and help you grow your retirement portfolio moving forward.

Who knew wood pellets could be such big business?

Northern European power companies are serious about transitioning to sustainable energy. With a mandate to cut carbon emissions and wean themselves off of coal, many such companies are turning to wood pellets. New Englanders are very familiar with them.

What was once used primarily as an additional fuel source to stay warm during a Maine winter is now becoming a major source of profit for one Southeastern United States company: Enviva Partners (NYSE:EVA), a company which sports a yield of 8.9% based on 2017's expected payout.

The company owns processing plants in Mississippi, Virginia, North Carolina, and Florida, as well as a wholly owned deep port in the Port of Chesapeake to transport the pellets across the Atlantic. The company's size, scale, and long-term contracts offer a substantial moat against competitors. And business has continued to grow quite nicely over time.

Data source: SEC filings.

That last tab is of particular significance for dividend investors. Distributable cash flow (DCF) is the company's measure of how much cash Enviva potentially has on hand to offer shareholders in the form of a dividend payment.

Ideally, the company wants to have a DCF coverage ratio of 1.15. That means that it has 115% of what is necessary to pay 100% of its dividend. The inverse is to say that the company wants to use no more than 87% of its DCF on the dividend.

Wood pellets burning

Image source: Getty Images.

But over the past year, the coverage ratio was 1.4, meaning that just 72% of DCF was used on the dividend. Given this, the company's growing backlog, and the fact that shares currently trade for just nine times DCF, there's lot of hidden potential here.

The biggest risk for investors to watch is when an eventual transition to even more sustainable forms of energy (wind, solar) starts to take hold. I don't think these Northern European companies will be using wood pellets forever -- but they are a good option to provide a bridge from coal to another input.

High-end hotels for the long run

Coming out of the Great Recession, high-end spenders were the quickest to resurface. That's largely because our recovery has been uneven -- with the wealthy enjoying most of the economic growth since 2009, while the rest of us didn't see circumstances improve nearly as much.

But that's been great for those that cater to such high-end business clients. Case in point: Chesapeake Lodging Trust (NYSE:CHSP), a company that owns 22 different luxury hotels throughout the United States under various banners, including Hyatt and JW Marriott.

Like Enviva, the company has shown strong results in a number of key areas, including occupancy rates, revenue per available room (RevPAR), and its adjusted EBITDA margin.

Data source: SEC filings.

Also like Enviva, Chesapeake has its own measure for evaluating how much cash is available for dividends. Adjusted funds from operations (AFFO) is that metric. And when we look at the company's dividend history, we see that the payout for the 6.1% dividend yield is very sustainable.

Chart showing that company as consistently grown AFFO, while not using too much of the dividend

Image source: Chesapeake Lodging Trust.


The stock has trended downwards lately as industry experts believe that supply has caught up to demand, and such hotels will have less pricing power than in years' past. That may be true, but if you're truly a long-term investor looking to add dividend stocks to your retirement portfolio, you can take advantage of such cycles by buying in today.

Without a doubt, that cycle will eventually swing back in Chesapeake's favor. And when it does, you'll be glad that you bought shares when they traded for only 11 times AFFO.

While I don't currently own either of these stocks, I will be choosing one in the month ahead to add to my own retirement portfolio. If you're interested in cheap, high-yield dividends to add toward your retirement portfolio, I suggest you consider doing the same.