3 Undervalued High Yield Dividend Stocks!

Every single month over on dividendology.com, we release a list of undervalued dividend stocks. And it just so happens that this month's list, all three of them are pretty high yielding stocks. The reality is that even with the S&P 500 up over 11% year-to-date and over 19% over the last year, there's still a lot of opportunities in this market, particularly in the high yield space. These are companies that get very little traditional analyst coverage, creating what I call valuation gaps. So, in this video, we're going to be looking at three stocks that are currently undervalued, all of them high yield stocks. And again, like always, if you want to get my best research delivered straight to your inbox, then you need to sign up for dividendology.com at the link in the description. You'll typically get just two emails from me a week. So again, be sure to sign up at the link in the description. But, the first high yield stock that looks very interesting at its current prices is Hercules Capital, stock ticker HTGC. Now, one of the things we have to understand is when we look at the stock price in the last year, it's down by around 11%, and year-to-date, down by about 9.4%. Obviously, compared to the broader market, that is some serious underperformance. But, we also need to understand the type of stock we're looking at. We're looking at a business development company, a BDC. And the overall BDC market as a whole has done very poorly in the last year. If we look at the Van Eck BDC Income ETF, basically, it's an ETF that holds BDCs. It's also down by about 16.6% in the last year. So, this entire sector as a whole has been beaten up pretty badly in 2026. However, there's a couple of things we have to make note of. Yes, the vast majority of BDCs have performed very poorly, and historically, they haven't done very well. But, there's a few BDCs that end up being incredible opportunities. But, you really have to roll up your sleeves to find these opportunities. The issue is on traditional softwares, Yahoo Finance, Seeking Alpha platforms that I am a fan of. They don't have the data you need to analyze BDCs. So, one of the things that I do over on dividendology.com is I compile data every single month on these alternative high-yield asset classes, and I have a BDC database. And this gives in-depth data on this asset class. And if you aren't familiar with this asset class, you'll see why this is so important. To start, let's talk about the dividend yield. If we zoom in and scroll down, we can see Hercules Capital right here. If we start to scroll over, we can see the base dividend right here listed at about 9.5% and the total dividend listed at 11.1%. Why is there two different dividend yields shown? Well, what we have to understand is these BDCs will frequently pay out special dividends when they have the opportunity to. So, when we look at the dividend history here on Seeking Alpha, which link in the description by the way, in the dark gray color here, we can see these are the base dividends that are being paid out. But on top, in the orange, these are the special dividends that are being paid on top base dividend. What we have to understand is these special dividends aren't guaranteed. They distribute them when they're possible. But this is why the initial yield you see on a lot of softwares is misleading because the yield here on Seeking Alpha is 11.1%. When in reality, the base dividend yield for this BDC is sitting at 9.5%. And if we look at the base dividend coverage, basically, it's sitting at 100%, essentially meaning the company is using all their net investment income right now to pay out dividends, which in short means it's going to be difficult for them to maintain those special dividends over the next year. So, the reality is you're more than likely going to get a yield of closer to 9.5% versus 11.1% if you buy this stock today, at least based on how the current numbers look. Now, with that being said, why is this BDC down so much? Why is the BDC market as a whole down so much? Well, there's a couple of things you need to understand. Entering into 2026, the sector was facing two primary issues. The first was the threat of rate cuts. That's right, not rate hikes, but rate cuts. Why would that be the case? Well, again, you have to understand a BDC is essentially a portfolio of loans, and the vast majority of the loans that they give out are floating rate loans. So, when you think about it, that means if rates are going higher, then the interest income they're collecting from those loans is actually going higher as well. So, generally speaking, if rates are going higher, they're going to collect more net investment income. So, as long as rates don't make a substantial jump up in a short time period that would essentially cause the underlying holdings in their portfolio to default, then rate hikes are pretty good news for BDCs generally speaking. However, there's another primary issue we can see that's overexposure to the software sector in their loan portfolio. Now, we'll touch on this here in just a moment because first we need to understand rate cuts aren't happening in 2026. We know that's the case now. In fact, we may even get some rate hikes. That's good news for BDCs. However, this hasn't changed nearly as much. A lot of these BDCs have significant exposure to software companies in their portfolio, which generally speaking the market feels are the type of companies that are prone to disruption from AI. And if we look at Hercules Capital right here, HTGC, we can see about 33, close to 34% of their loan portfolio is tied up with tech/software companies. That's a major concern for a lot of investors. However, that doesn't paint the full picture. Obviously, if you really wanted to dive into this, you'd have to look at all the individual holdings in the personal portfolio. So, with that being said, take note of a couple of different things. During Q2 of 2026, Hercules generated 50 cents per share of net investment income, which comfortably covered the 40-cent regular dividend, not the total dividend, by 125%. So, for Q2, that's a good sign. If we scroll down even further, there's a couple of other things we need to make note of, particularly in regards their portfolio. Only 0.1% of HTGC's portfolio is currently made up of troubled loans that have stopped generating interest income, which really highlights the company's exceptionally strong credit quality. I mean, 0.1% that's incredibly low for a BDC. So, yes, software exposure is high, but the overall portfolio has done tremendously well, which when you look at the company's valuation, it starts to make sense. Yes, they're trading at about their historic average valuation multiple of 1.37, while the 10-year average is 1.38. But, even then, if you look at it in the last 5 years, they're still trading on the lower end of their valuation multiple. And there's a couple of different reasons as to why this is. Yes, the first is what we just mentioned. It's due to the strength of the overall portfolio. But, at the exact same time, if they can maintain a 9.5% yield, while simultaneously slowly growing their net asset value, which is exactly what analysts are projecting them to do over the next 3 years, then they have every right to be trading at a slight premium when we look at the price to tangible book value per share. For a lot of BDCs, they end up seeing a decline in their net asset value because they're making distributions that aren't sustainable. So, you certainly have to be very careful when dipping into the BDC market. But, when you start to dive into the underlying loan portfolio and the dividend coverage for this BDC, you can see this looks like one of the more attractive opportunities, particularly in the very high yield space. Now, we come to AT&T, who just a few years ago was one of the most popular dividend stocks on the market. But, we can see in the last year, down by 14% and in the last 5 years, down by about 8.78%. And I remember making videos on this stock around four, maybe five years ago, when they ended up having to cut their dividend. It was right in the middle of when everybody was talking about how great of a dividend stock they were. So, what happened and why is it an opportunity now? Well, if we jump over to our dividend breakdown sheet, the data will load in and we can still see they're still yielding about 4.4% but previously they had a history of growing those dividends. They slashed the dividend pretty significantly almost by 50% but one of the things we'll now notice is free cash flow is covering the dividend pretty comfortably. The free cash flow payout ratio before the dividend cut was sitting at about 79.5% which yes, is sustainable but I'll tell you why that was an issue in a moment. But we can see after the dividend cut it's sitting much closer to about 40% and as of the end of 2025 at just 42%. So, the company is only using 42% of their free cash flow to pay out dividend. That puts their dividend in a much more sustainable position and here's why this is really so important. Comes down to capital allocation essentially just like everything always does. Remember what one of the options is with free cash flow and capital allocation. It's strengthening the balance sheet. It's paying down debt. Now, that's particularly important for AT&T because they still have an incredibly large debt balance. 126.4 billion in net debt. That's obviously a little bit over leveraged and management has stated that they're targeting a leverage of approximately 2.5 times EBITDA over the next several years and obviously to get to that level, they're going to have to use capital to deleverage. So, naturally it's a very good thing the free cash flow payout ratio is now substantially lower. That's why it wasn't sustainable at 80% because the debt just kept growing higher and higher. Obviously not something you want to see. Now, with that being said, we can see AT&T's valuation multiple right now sitting at about 10.45. It's come down quite a bit particularly in the last year when it peaked at about 14 times earnings. So, what's a reasonable valuation multiple for a company like AT&T, a very slow growing earnings company? Well, if we jump over to earnings estimates, one of the things you'll notice is projections are actually quite a bit stronger than you would expect, particularly over the next 3 to 4 years. Analysts are guiding towards close to 9 to 10% earnings growth. It's actually very impressive. And so, ultimately, if we jump over to our valuation sheet and take a look at AT&T, jump over to the dividend discount model. Again, we're basically valuing the stock based on how much it's going to pay out in dividends and how much that dividend will grow in the future. But, what's really interesting is right now, if you apply a 0% dividend growth rate to AT&T, the stock is only worth about $13 per share. So, ultimately, over the long haul, the market is pricing in dividend growth, despite the fact we might not see any dividend growth over the next couple of years as the company continues to deleverage. What we can see is if we bump dividend growth up to about 3%, all of a sudden we get to $20, close to $21. If we bump it up to 4%, we get very close to the company's current share price. So, essentially, this is what the market is pricing in over the long term. And it seems aggressive at first glance for a stock like AT&T, until you consider the fact they're using less than half of their free cash flow to pay out dividends, and at the exact same time, earnings growth over the next 3 to 4 years is projected to be close to 10%. So, if they achieve this level of earnings, they hit their deleveraging target, then the nice starting dividend yield is certainly a great place to start. But, on top of that, it does look like there's some upside. Even if we look at the average analyst price target right now, it's sitting at about $29 per share, implying 15% upside. And then, finally, we have VICI Properties, one of the most highly debated REITs in the space right now. In the last year, it's down by 19.4% year-to-date, down by 5.5%, but keep in mind, that's in the middle of other REITs performing very well, with VNQ, the Vanguard Real Estate Index, actually outperforming the S&P 500. So, it's not doing very well relative to its peers. But, what we can see is it's now yielding around 6.83% so it's coming up on a 7% dividend yield. Now trading at these prices puts them at their lowest valuation multiple, the lowest price to AFFO per share multiple that it's had in the last 5 years sitting at just 10.59 when the average is closer to about 14. So that's a substantial drop in the valuation multiple and typically when that happens what it means is the company's no longer really growing their AFFO per share or maybe the dividend starting to come at risk. But just a quick glance at what's going on and what's projected to continue to happen with AFFO per share and just a quick glance at the dividend metrics quickly reveals that that's simply not the case for this REIT. AFFO per share is growing at a strong rate projected to continue to do so and the dividend is very well covered with the payout ratio sitting close to around 75%. So what's going on with this REIT? Well if you really want to take a deep dive into it just a couple weeks ago on the Mispriced Podcast, my podcast channel, I actually interviewed the CEO of VICI Properties and we dug deep into the potential concerns with VICI and what the valuation looks like right now. And the reality is it primarily boils down to one thing. Yes, projected AFFO per share growth should be good, the valuation multiple looks good and the yield is extremely attractive but the real issue comes down to the fact their top two tenants are going private which for us individual retail investors is going to take away the ability for us to know what their rent coverage actually looks like. Previously those tenants were open books financially speaking, we could see how easily they can make their rent payments. We're about to lose that ability for potentially the top two tenants and anytime there's less predictability of future cash flows investors are always going to be willing to pay a lower valuation multiple as a result. So that's undoubtedly the case for VICI Properties right now. Ultimately, I think that's the main issue. I know other people have pointed out potential declines in traffic to Las Vegas, but the reality is when you look at the numbers, things have really stabilized so far in 2026, and we're actually seeing positive year-to-date growth in a lot of categories, even with total visitors to the city. And the reality is when it comes Las Vegas visitor volume, VICI doesn't necessarily need growth every single year. All it has to do is collect rent from its tenants. So, it would take a substantial decline in overall visitor volume for VICI really to be impacted. So again, if we just look at them from a valuation perspective, let's jump over to our dividend discount model and see exactly what we're working with here. Now again, what's interesting is what VICI has guided towards is around 3.3, 3.4% AFFO per share growth at least over the next year. So, let's pull this back and assume they only achieve 3% over the next few years. All of a sudden, we can see fair value is about $33 per share, which implies 24.4% upside from current prices. So obviously, that would be significant upside. And to be honest, that's not too far off from what the average analyst price target is at $31.54, implying around 19% upside. So the reality is that fundamentally speaking, VICI is actually still doing very well. Some of the potential concerns like traffic to Las Vegas really aren't that big of a deal for VICI right now. Ultimately, it comes down to concerns over losing visibility into the financials of their top two tenants, which for reference do make up the vast majority of their rent roll. So, there's certainly some tenant concentration. So real quick, like always, if you'd like to download any of the spreadsheets that you saw in this video, and also get access to the Ticker Data add-on in Google Sheets that allows you to import stock financials directly into your spreadsheet, then you can head over to tickerdata.com at the link in the description. And again, if you always want to get my best research directly in your inbox, then you need to sign up for dividendology.com at the link in the description. It's where I put out my best research. So, go ahead and let me know what you think of these three high yield stocks in the comments down below and if you plan on buying, selling, or simply having them on your watch list. And like always, please don't forget to like and subscribe to the channel.