Income-seeking investors often face a dilemma when deciding which dividend stocks to buy. Because of the current low-interest-rate environment and red-hot stock market, they usually need to pay up for premium dividend stocks, locking in a less than desirable yield in the process. Otherwise, they'd need to take a chance on a stock with a higher yield that might also come with some financial issues.

However, there are a few diamonds in the rough that offer a more compelling yield without the premium price tag. Two top choices are pipeline giant Kinder Morgan (NYSE:KMI) and hospital REIT Medical Properties Trust (NYSE:MPW). As the following table shows, both offer an above-average current yield for a relatively cheap price:

Dividend Stock

Current Yield

Current Price

Projected Cash Flow Per Share

Price-to-Cash Flow

Kinder Morgan





Medical Properties Trust





Data source: Kinder Morgan and Medical Properties Trust. Stock price as of Oct. 26, 2017.

Hands giving and receiving money.

These dividend stocks pay their investors well. Image source: Getty Images.

Patience is a virtue

While some income investors might take one look at Kinder Morgan's lower current yield and immediately decide to take a pass, it is well above the 1.9% average yield of stocks in the S&P 500. Furthermore, the payout is on pace to grow significantly over the next three years. The company recently announced plans to increase the dividend 60% early next year, which implies that investors who buy today can lock in a 4.44% yield for 2018. Meanwhile, the company also said it would boost the payout by 25% in both 2019 and 2020, which suggests investors could collect a nearly 7% yield on their initial investment in 2020. 

That payout, moreover, is on rock-solid ground. First of all, Kinder Morgan generates relatively predictable cash flow because fee-based contracts underpin the bulk of its assets. Second, it currently pays out only 25% of that money through dividends and anticipates that its 2020 payout would consume half its cash flow because of the growth projects it has in development. Finally, its balance sheet has grown stronger in recent years, with the company close to getting its leverage ratio down to its target.

Usually, a company that offers a secure dividend and visible growth would trade for a premium price tag. However, that's not the case with Kinder Morgan, which trades at a more than 50% discount to its peak valuation. It's also much cheaper than most of its rivals:

Pipeline Company

Current Yield

Price-to-Cash Flow




Targa Resources (NYSE:TRGP)



Data sources: ONEOK and Targa Resources. 

While investors can collect much higher current yields at ONEOK and Targa Resources, that's because they're paying out a much higher percentage of their cash flow. ONEOK, for example, currently pays out about 80% of its cash flow, while Targa Resources' is well over 100%. If Kinder Morgan matched those payout rates, it would yield between 9% and 11%. However, because it pays out less cash, its dividend is on much firmer footing.

Stacks of coins increasing in size topped with growing plants on top.

These dividends should grow even larger. Image source: Getty Images.

A healthy dividend without the high premium

Medical Properties Trust offers income investors the high current yield that they're seeking without any of the blemishes typically associated with an elevated income stream. For example, the company has one of the stronger balance sheets in the REIT sector, with a low leverage ratio of less than 5.5 times debt-to-EBITDA. Further, its current dividend payout ratio is just 73% of cash flow, which is well below the level of other REITs.

Despite that sound financial profile, Medical Properties Trust sells for a much cheaper price than other healthcare-focused REITs. For example, Welltower (NYSE:WELL) sells for more than 15 times its normalized funds from operations, which is a proxy for cash flow. While Welltower has a slightly lower leverage ratio at 5.17, it also has a higher payout ratio at 82%. Yet despite paying out more cash, Welltower currently yields only 5.25%, which is due entirely to its premium price tag. For perspective, if Medical Properties Trust matched Welltower's current payout ratio, its yield would be an even higher 8.1%. 

One other thing that's worth noting about Medical Properties Trust's valuation is that it will be even cheaper next year because the company recently closed the acquisition of several additional hospital properties. The company expects that deal to boost its normalized FFO up to $1.42-$1.46 per share, which implies that it's selling for just 9.1 times projected cash flow. Not only does that forecast suggest that Medical Properties is even cheaper than it appears, but it also shows that the company has ample room to boost its already healthy dividend.

Great dividend stocks for the long haul

Kinder Morgan and Medical Properties Trust stand above the crowd because they're dirt cheap compared with their peers. Both also pay above-average dividends that are not only on solid ground but appear poised to grow. Either one would be a great addition to an income-focused portfolio.

Matthew DiLallo owns shares of Kinder Morgan and Medical Properties Trust and has the following options: short January 2018 $30 puts on Kinder Morgan, long January 2018 $30 calls on Kinder Morgan, and short December 2017 $19 puts on Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan and ONEOK. The Motley Fool recommends Welltower. The Motley Fool has a disclosure policy.