While stock valuations have decreased considerably during this year's market sell-off, some have gotten really cheap. They look like excellent opportunities for long-term investors with a little bit of cash to put to work.

Two absurdly cheap stocks are Kinder Morgan (KMI -0.08%) and Medical Properties Trust (MPW 1.13%). They all offer high dividend yields. That enables investors to turn a relatively modest investment into a generous passive income stream. On top of that, they offer lots of upside potential from earnings growth and an improving valuation.

A bottom-of-the-barrel valuation

Kinder Morgan operates a diversified midstream business consisting of pipelines, processing plants, storage terminals, and other energy infrastructure. These assets generate very steady recurring income backed by long-term fixed-rate contracts and government-regulated rate structures.

Kinder Morgan expects to produce $2.17 per share of distributable cash flow this year, about 5% above its initial budget, because of improving conditions in the energy market. With its stock price recently around $18.50 a share, Kinder Morgan trades at about 8.5 times cash flow. That's absurdly cheap for a company that produces very stable cash flow that should continue growing in the future. This dirt cheap price is why Kinder Morgan currently offers a 6% dividend yield. 

The company's dividend will only consume about half its projected cash flow. That's giving it the funds to continue expanding its operations, repurchase its absurdly cheap stock, and further strengthen its balance sheet. The company is investing $1.1 billion to build a renewable natural gas platform. It's also building out a couple of renewable fuel hubs and has approved several natural gas pipeline expansion projects.

These investments in cleaner fuels should enable Kinder Morgan to continue growing its cash flow in the future. At some point, the market will give the company credit for its growth potential. In the meantime, investors get paid well as they wait. For example, a $250 investment in the pipeline giant could produce $15 in annual dividend income. That income stream will likely rise as Kinder Morgan's earnings expand in the coming years. The company has already given its investors a raise in each of the last five years.

Trading at a healthy discount

Medical Properties Trust is a real estate investment trust (REIT) focused on owning hospitals. It leases them back to operating companies under long-term contracts that supply steady rental income.

The healthcare REIT expects to generate $1.78 to $1.82 per share of normalized funds from operations (FFO) this year. With its stock price recently trading at less than $15 a share, it fetches around eight times its FFO. That's a healthy discount to the average healthcare REIT, which trades at more than 15 times 2022 FFO.

That absurdly low valuation is why Medical Properties Trust offers such a high dividend yield that currently clocks in at 7.8%. The REIT generates plenty of rental income to cover that dividend, with its payout ratio currently at less than 80% of its FFO. That enables it to retain some income to fund new investments.

Another factor weighing on the REIT's valuation is that investors aren't giving it any credit for its minority investments in several hospital operating companies that it often acquires when purchasing the underlying real estate. The REIT has been working to showcase this hidden value by monetizing some of those interests. It has a sizable remaining portfolio, giving it lots of upside potential.

It could take a while before the market gives this REIT full credit for its hospital portfolio. Investors get paid very well while they wait for this to happen. A $250 investment would generate $19.50 in dividend income each year. That income stream will likely rise in the future as the REIT continues expanding its portfolio. It has already boosted its dividend for eight straight years. 

Turn your cash into an income stream with lots of upside potential

Kinder Morgan and Medical Properties Trust trade at such absurdly low valuations that they offer very high dividend yields. That allows investors to turn a $500 investment into a compelling passive income stream. On top of that, they provide significant upside potential from earnings and dividend growth and the prospect of achieving the higher valuations they deserve. That combination of return catalysts makes them great stocks for long-term investors to buy these days.