4 Undervalued High Yield Stocks With Safe Dividends!

The reality is that high yield investing is a lot like playing the old game Mind Sweeper. If you just go around randomly clicking on squares, you might survive for a little while, but eventually you're basically guaranteed to hit a mine, which of course ends your game. But the reality is this is how a lot of people go about high yield investing, and it's extremely dangerous. So today, I want to talk about four stocks that have high yields with actual sustainable dividends. Now, what's really interesting about the high yield space is there's very few high yield stocks in the S&P 500. I'm a huge fan of the S&P 500. It's a great long-term strategy, but for investors looking for income, it's certainly not optimal. How many stocks in the S&P 500 currently yield over 5%. Just 15. How many yield over 6%? Just five. And the reality is that most of the high yield stocks in the S&P 500 are high yield for a reason. Those companies get significant analyst coverage. So there are rarely disconnects with the valuation and the company's intrinsic value. And ironically enough, disconnects in valuation are what lead to high yield opportunities that actually have upside as well. So while there are at times potential for high yield opportunities in the S&P 500, it's not typically the best place to look. In fact, often times you have to turn to alternative asset classes to find potential high yield opportunities like ETFs, MLPS, REITs, business development companies, and even preferred shares. Unfortunately, the way we analyze each of these asset classes is radically different from each other and especially radically different from a typical S&P 500 stock, which is why a lot of retail investors get burned when investing in these assets. But don't worry, we're going to be looking at a few of these different asset classes today and looking at some potential opportunities with sustainable high yields. And to start, we actually are going to look at one stock in the S&P 500, and that is none other than Verizon Communications. Year-to- date, the stock is actually up by about 6.7%. So, it's performed fairly well. It's underperformed from a share price appreciation standpoint, but is close to being in line with the S&P 500 from a total return perspective. Now, if we jump over to our dividend breakdown sheet and plug in VZ, and all the data will automatically load into your spreadsheet. Now, like always, if you'd like to download any of the spreadsheets you see in my video and also get access to the Ticker Data add-on in Google Sheets that allows you to automatically import stock financials directly into your spreadsheet, then you can head over to tickerdata.com at the link in the description. We just released some new features as well as some new metrics that you can automatically pull directly into your spreadsheet. The docs page will take you step by step on how to set things up. And if you become a premium member, you're going to get access to over 20 readyto-go premium spreadsheets as well. Use code HEAT at checkout to get 30% off annual plans. Now, as we start looking at Verizon again, you can see a nice high starting dividend yield at about 6.4%. Now, the other assets that we'll look at later today are certainly yielding quite a bit more, but this is a good start. 6.4% is certainly a higher yield. Now when it comes to stocks like Verizon, how do we actually analyze the sustainability of those dividend payments? Well, ultimately we have to look at free cash flow. Dividends are paid out of free cash flow. We need the stock generating more free cash flow than they are dividends. And what we can see is in 2025 free cash flow was at 20.1 billion while dividends paid out was sitting at about 11.4 billion. In other words, their free cash flow payout ratio was just about 57%. They only used 57% of their free cash flow to pay out dividends. That's very healthy, particularly for a high yield stock. And we can see that trend has been going on for the last few years, 58.9% in 2023, around 59.4% in 2024. In fact, in 2022, it did jump up to red flag levels at 103%, but since then, it's been very strong. In fact, this high yield stock actually grows its dividend payouts essentially every single year. Now, one thing to make note is the dividend growth is low. The 10 and 5-year dividend hagers are both sitting a little above 2% which is technically below the rate of inflation. So, in terms of purchasing power, technically they're not growing their dividend every single year. So, that is something to keep in mind. Ideally, you want dividend growth to at least be in line with inflation. But overall, for a high yield stock, this is relatively impressive. Now, here's what's really interesting about Verizon right now. If we jump over to their recent earnings report, they released 2026 guidance and it's actually quite impressive what they're expecting to pull off. They increased their guidance. Adjusted EPS should be about 5 to 6% growth, which was up from the prior guidance. And they're expecting free cash flow of 21.5 billion or more. So that's essentially around 7% growth from the previous year. Now remember I mentioned earlier that dividends are paid out of free cash flow. So free cash is growing at around 7% and earnings are growing at about 5 to 6% naturally dividend growth is possible. So when we look at Verizon in terms of valuation jump over to our stock valuation sheet and plug in stock ticker VZ look what happens if we value Verizon from a dividend discount model perspective. If we go ahead and zoom in what we can see is we're valuing Verizon based on how much they pay out in dividends and how much that dividend grows over time. Now, we already pointed out that historically speaking, dividend growth has been a little above 2%, which isn't anything too impressive. There's no doubt. But they have ample room to grow the dividend with a free cash ratio of just 57%. And especially when you consider the fact that free cash growth is actually speeding up slightly. Earnings growth is actually speeding up slightly. In fact, if we jump over to seeking Alpha, look at the earnings estimates over the next few years. Around 5%, 6.5% then even 10% growth. If Verizon gets anywhere close to that, then dividend growth should actually be slightly speeding up. So, if they can achieve dividend growth of about 2.75% annually, you can see fair value would be around $48.65, implying 12% upside. So, Verizon is one of the few examples of an S&P 500 stock with a sustainable high yield that actually has some upside at its current prices. Now, let's start turning to alternative asset classes to look for more sustainable high yields. And the next one is one you're probably familiar with. It gets a lot of hype. It's a well-known BDC and that's Main Street Capital Corporation, Scticker, M A I N. Right now, it's trading at $54 a share, but in the last year now, it's down by 15%. Year to date, down by 10.47%. Now, today, I want to show you something that a lot of investors don't realize. When we look at the yield for Main Street Capital, whether you're looking at an app like Seeking Alpha, which by the way, I'm a huge fan of. I think it's great. I have a link to it in the description. Or whether you're looking on Yahoo Finance or any other financial software, the yield you're going to see will be close to around 8%. Right now, it's showing 7.91%. That's the forwardlooking yield. However, the reality with BDC's in particular is that yield can be very, very misleading. The reason why is because BDC's technically have two different yields. If we scroll down, we can see this. I was writing about this on dividendology.com. BDCs have two yields, a base dividend yield and a total dividend yield. And to understand why that's the case, you need to understand the BDC business model. It's basically a publicly traded investment company that primarily lends money to and invest in small to midsize businesses. So basically, it's a mix between a bank and a private credit fund. They give out loans and earn interest from those loans. So naturally, what does that mean? Well, it means when rates go higher, and they are relatively high right now, at least compared to where they were in 2020 and 2021, then these BDCs generate a lot more income. And right now, target rate probabilities are showing that we should see a rate hike or even potentially two rate hikes by the end of 2026. Generally, that's good news for BDC's. But with that being said, I don't think you're going to get this full 8% yield. Not at least in 2026. And let me show you why. I mentioned how we have a base dividend yield and a total dividend yield. The base yield is what you hypothetically should be guaranteed to get. However, the total dividend yield includes special dividends. So, look at this chart from Main Street Capital's investor presentation. What we have in gray is the base dividends and you can see this essentially grows every single year. Main Street Capital's been very good at this. Now, in the green, we have the special dividends. What you can see is when rates were extremely low, like in 2020 and 2021, there were essentially no special dividends paid out. But as rates went much higher, the special dividends grew very, very large. But unfortunately, the vast majority of softwares when they're showing the yield for these companies, they're including the special dividends, which are not guaranteed. And let me show you the math behind why that's a little bit concerning, particularly for Main Street Capital. Right now, BDC's pay out dividends from their net investment [clears throat] income, which reflects the interest and fees collected on their loan portfolios. So, their dividend coverage ratio is simple. It's the net investment income divided by dividends paid. Main Street Capital's regular monthly dividend, the base dividend right now is.265 per share. So, 26.5 per share. That comes out to about $3.18 per year because remember they pay out monthly. The company is also paying a 30cent quarterly supplemental dividend, bringing the total annualized payout to $4.38 per share. So, here's where things start to get interesting. Management has stated they expect second quarter net investment income of at least $1 per share. So, comparing that to the regular dividend payment, that gives Maine strong base dividend coverage of 1.26 times. So, the base dividend is very well covered, particularly for BDC. But the same cannot be said for the supplemental dividend. The regular and supplemental dividends together total $1 9.5 per quarter, meaning net investment income of $1 would be a shortfall of approximately 0.95 cents per share. So if distributable net investment income remained near $1 per quarter, like management said, Main Street Capital would generate $4 per share annually, which would not cover the full $4.38 payout right now, which is what a lot of softwares are using to calculate that forward-looking yield. So, here's what you have to understand. Main Street Capital is still a highquality BDC and their base dividend coverage is still very, very strong. However, you can't expect the full supplemental dividend to be paid out over the next year. It's a mistake a lot of investors are making right now. So, in reality, the base yield right now is closer to around 6%. You'll probably still get some supplemental dividends. Maybe it'll push it even closer to 7%, but that's not guaranteed. Now from a valuation perspective, one of the best ways to value these BDCs is with a price totangible book value per share. So basically for BDCs, it compares the stock price with the tangible net value of its investment portfolio. So with Main Street Capital trading at about 1.62 times price, tangible book to value per share, it trades at a slight premium to what the actual underlying value of its portfolio is worth. Now, why is that the case? Well, it's because Main Street Capital compounds its tangible value per share over time. That's not true for a lot of BDC's. At the exact same time, we can also see they have a lot less exposure to software/tech companies in their underlying portfolio. They're sitting at about 15% exposure while a lot of their peers are much higher. And with the way AI is changing the landscape of this market, you don't want to have a lot of exposure to software and tech companies. So, Main Street Capital, yes, a high yielder with sustainable base dividends, and you will get some supplemental dividends, but don't be confused or misled by simply looking at that starting yield. Now, let's look at an even higher yielding company, and that's Western Midstream Partner stock ticker WES. This stock is an MLP, a master limited partnership, and over the last year, it's up by about 15% and year-to date, it's performed incredibly well. It's up by 18%. And when I released a newsletter article of the top 10 high yield stocks for 2026, this was actually one of the companies that was on that list. And so far, like I said, it's done very well. What's interesting is if we look at the starting dividend yield at the beginning of 2026, what we can see is the company was yielding around 9.2 to 9.3% at that time. And that's even on a trailing 12-month basis. So, we're talking about an over 9% yield, but the stock is still up 18% year to date. This is what I'm talking about. These are the type of opportunities that get very little traditional media coverage, very little analyst coverage, which creates valuation gaps. There can be huge opportunities to buy these high yield assets with them still having upside. Of course, that is if you know what to look for. Now, at current prices, we can see the yield since the share price has climbed is sitting about 8.09%, 09%. Which obviously is still a high yield. Now, of course, the two questions people would ask at this point would be, is that yield actually sustainable at around 8% and is it overvalued after the 18% run up in share price? Well, let's touch on a quick couple of things. First off, what type of business are we actually talking about? Now, like I mentioned earlier, this is a midstream business. So, what do we need to understand? Well, it's an MLP basically focused on gathering, processing, and transporting natural gas, crude oil, and natural gas liquids. So, yes, this is an energy stock. However, there's an important caveat to this. The producers generally pay Western Midstream based on the volumes moving through its systems. So, why is that important? Well, it's important because Western Midstream Partners isn't nearly as impacted in the price of oil as you would at first think, particularly for an energy stock. And we've already seen in the past year just how volatile oil prices can be. It's about the volume that it moves. This is a huge advantage because traditionally I'm not a huge fan of energy stocks. However, midstream stocks are completely different. Now, here's what's interesting as well. If we jump over to their investor presentation from the recent earnings report, take a look at their capital allocation priorities. They have net leverage at about 3.0x. It's not necessarily overleveraged. So naturally, what they're doing is they're focusing on expansion opportunities. They're not afraid to increase leverage slightly since it's already so low. And on top of this, they're looking to actually grow distributions. They're looking to grow dividends targeting mid to low singledigit annual distribution increases. So despite the fact that this MLP is already yielding over 8%, they're looking to grow distributions. And so far this year, they've actually already done that, growing it by about 2%. So, that still doesn't completely paint the picture of whether or not those distributions are sustainable. But here's what does tell us. The distributable cash flow per share versus the dividends being paid out. For MLPS, you always need to look at distributable cash flow per share. And we can see it's easily covering the dividends, at least in 2026, and it's projected to continue to do so. So, from a valuation perspective, this is what's interesting. If we come up here and plug in Wes, let's jump over to our dividend discount model. And if we go ahead and zoom in, look at this. Even if we assume just 1% dividend growth or distribution growth moving forward, there's about 4% upside. And what do we just read at their investor presentation or earnings slides? They're targeting mid to low singledigit annual distribution increases. So play with the numbers. Even if they get 2% distribution growth, all of a sudden 21% upside from current prices. And this is around the rate that they grew in the last year. So, that's pretty exciting. It's clearly a high yield opportunity that has a sustainable 8% yield, a growing yield, a growing distribution rate, and at the exact same time, they're increasing their intrinsic value as distributable cash flow per share continues to grow along with it. And then lastly, we're getting to an even higher yield, an over 9% yield as of right now, 9.08%. And we're actually looking at preferred shares. And this is an asset class very few people look at, but if you understand what you're looking at, it can be a huge advantage. And we're talking about innovative industrial properties 9% cumulative preferred series A shares. So that's a little bit of a mouthful. So what exactly are we looking at here? Well, we can see in the last year it's essentially traded flat, down by about 0.37%. Now, Innovative Industrial Properties is a cannabis rate, and cannabis rates right now are considered very risky, and it's because their tenants are quite weak. At the end of the day, a REIT is only as good as its tenants. And so, if the tenants can't pay, then obviously the REIT isn't considered high quality. But here's what we have to understand, particularly in relation to the preferred shares. The preferred shares specifically for innovative industrial properties are a different situation. They're yielding around 9 to 9.2% 2% and they enjoy three very unique advantages. Number one is priority over common shareholders. The preferred shareholders must receive their dividends before any dividends can be paid to common shareholders. On top of this, it's cumulative dividends. Notice how cumulative is in the name right here. What does that mean? Well, basically any mispreferred dividends accumulate and must be paid before the company can resume distributions to the common shareholders. And then the perhaps the most important one is greater dividend protection. Innovative industrial properties would need to suspend its common dividend before eliminating the preferred dividend which creates an additional layer of protection for preferred shareholders. So we understand there are some advantages, but it still doesn't paint the picture of how sustainable actually are these dividends. So how sustainable is it? And this is what's just mind-blowing to me. The company can currently cover their preferred dividend 48 times over despite the fact their debt ratio is extremely strong. The company has essentially no leverage. The preferred dividend coverage and debt ratio is much stronger than its peers. This is a high yield preferred share play that I think is extremely interesting. These are the type of high yield plays that I dig deep into over on dividendology.com where we're currently building out a real money high yield portfolio that's been outperforming the market in 2026 despite yielding over 9%. So, if you aren't reading the Dividendology newsletter already, be sure to check it out at the link in the description. And again, if you want to get access to any of my other spreadsheets as well as the Ticker Data add-on in Google Sheets that allows you to automatically import stock financials directly into your spreadsheet, then you can head over to tickerdata.com at the link in the description. Use code heat to get 30% off annual plans.