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It is tough to find yield at reasonable prices in this market for the most part thanks mainly to the Fed's policies. Most traditional dividend stocks appear stretched when measured against historical valuation metrics. Slow-growing high dividend payers that traditionally go for 10-12 times forward earnings now seem to be going for 14-16 times forward earnings. AT&T (NYSE:T) is a good example of this. Most utility stocks are other good examples. The one high-yielding area I still like and that trades at reasonable valuations given its strong growth prospects is firms involved in the build out of the infrastructure needed to accommodate our growing domestic energy production. Here are two stocks that are prospering from this positive development, have solid valuations and that pay 5% dividends.

"Access Midstream Partners, L.P. (NYSE:ACMP) owns, operates, develops, and acquires natural gas gathering systems and other midstream energy assets in the United States. Its assets are located in Texas, Louisiana, Oklahoma, Kansas, Arkansas, West Virginia, and Pennsylvania." (Business description from Yahoo Finance)

4 reasons ACMP makes sense for income investors at under $34 a share:

  1. ACMP pays a 5% yield and has added some 25% to its dividend payout just over the last year and a half.
  2. The company has more than tripled operating cash flow in the last three years. (Cash flow is probably best way to value MLPs)
  3. The company is tracking to producing a 9% increase in revenues in FY2012. Analysts have Access having a 14% sales increase in FY2013.
  4. Morgan Stanley just upgraded the shares to "Overweight" and slapped a $39 a share price target on ACMP. Citigroup also upgraded ACMP to a "Buy" from "Neutral" in mid-September.

"Friedman Industries, Incorporated (NYSEMKT:FRD) purchases hot-rolled steel coils; processes the coils into flat, finished sheet, and plate; and sells these products on a wholesale basis, as well as processes customer-owned coils on a fee basis." (Business description from Yahoo Finance)

4 reasons FRD is a solid income pick at $10 a share:

  1. The stock yields 5.1% and the company has tripled the dividend payout over the last two years. The dividend payout is now higher than where it was before it had to be cut in the midst of the recession.
  2. FRD is selling for less than 6 times forward earnings, a discount to its five-year average (8.0).
  3. The company has a robust balance sheet with over $13mm in net cash on the books (around 20% of market capitalization). The stock also had its first insider buy of the year in late August.
  4. An investor should buy this stock for the cheap valuation and robust dividend yield. However, I believe the stock has an acquisition kicker. It has a minute market capitalization (under $70mm), a solid niche in a growing industry and all of its senior management is over 60…..sounds like a good recipe for an eventual buyout to me.

Disclosure: I am long FRD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Don't Overlook These 2 5% Yielders From The Energy Patch