In his industry-leading advisory service, Forbes Dividend Investor, editor John Dobosz identifies undervalued stocks with above-average dividend yields. Here he looks at two recent additions to his model portfolio — both energy-related ideas.

Founded in 1995, Stamford, Conn.-based Star Group, L.P. (SGU) is the nation’s largest retail distributor of home heating oil by volume. It also sells propane and heating equipment to residential and commercial customers in 16 Northeastern and Mid-Atlantic states, as well as in the District of Columbia.

Star also sells home heating and air conditioning products and services and provides plumbing services. With a market capitalization of $400 million, SGU is a small cap.

Star trades at discounts to all five valuation multiples we consider when evaluating stocks, including a 21.6% discount to its five-year average price-sales multiple, and 43.2% below its average price-earnings ratio.

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Generating $3.53 per share in free cash flow over the past 12 months comfortably covers the $0.53 in annual distributions, and the payout has grown 7.1% annually over the past five years. 

Houston, Tex.-based Phillips 66 Partners, L.P. (PSXP) owns and operates the midstream assets of Phillips 66 (PSX), engaging in processing, transportation, storage, and marketing of crude oil, fuels and other refined and processed products. It also produces petrochemicals and plastics.

PSXP is structured as a master limited partnership and it has paid steadily rising distributions since 2012. Two company directors purchased stock recently at $30.05.

PSXP has benefitted from the rise in oil prices, and it could suffer if crude craters again, but at the moment the stock is technically strong, pulling back this week to its 50-day moving average, a frequent level of support for stocks in an uptrend.

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