Dividend stocks offering investors high yields are inclined to be alluring for the reason that income they generate for shareholders is healthier than average. Nonetheless high yields often include high risks. If a dividend proves to be unsustainable and a company slashes the payout, investors may thoroughly be left holding a stock that suddenly doesn’t look all that great.
Medical Properties Trust (NYSE: MPW) pays investors a fairly high yield of 13% immediately. That’s well above the S&P 500 average of just 1.4%. Nonetheless, given the changes the company is undergoing immediately, that dividend won’t be the safest option for income investors.
Still, there are other potentially more enticing reasons to buy shares, provided you’re OK with the elevated risk.
Medical Properties Trust’s valuation is dirt low price immediately
Medical Properties Trust is an actual estate investment trust (REIT) that focuses on hospitals. Ever because the beginning of the pandemic, it has been plagued with tenants struggling to pay rent, including Steward Health Care. The problem was concerning enough that at first of the 12 months, the REIT announced a plan to help Steward improve its liquidity and strengthen its balance sheet.
As a consequence of these concerns, Medical Properties Trust hasn’t been a protected investment currently. That risk is obvious throughout the stock’s price decline. Since 2021, the REIT’s valuation has plummeted near 80%. Currently, the stock is trading at just 0.4 times its book value and a price-to-earnings multiple of lower than 7. That big discount is what could make this a potentially attractive contrarian investment.
If Medical Properties Trust can turn things around, it could have tremendous upside
Medical Properties Trust is coming off a brutal 2023 during which it incurred a net lack of $556 million consequently of some hefty write-downs and impairment charges. That just isn’t something you expect to see from a REIT, which is usually a fairly protected investment since its primary job is to assemble rent from tenants.
If there should not any further impairment charges coming this 12 months and the company is successful in helping Steward execute on a plan to reinforce liquidity, then there’s the potential for 2024 to be a significantly higher 12 months for the company.
It’s also selling assets that may add $2 billion to its own liquidity, as a method so as to add safety and stability. The downside is that with fewer assets in its portfolio, the rent it generates won’t be enough to support its current dividend, which could get one other reduction (the REIT already reduced its dividend last 12 months).
But when in the long term, the asset sales and improved liquidity make the business a safer investment overall, that may make the REIT a greater buy in the long run.
Must you’re taking a probability on Medical Properties Trust?
This just isn’t a REIT that’s suitable for a lot of dividend investors. The uncertainty on its payout means it should probably’t be relied on, and it could set you up for disappointment down the road.
If, nevertheless, you’re looking at Medical Properties Trust as a possible turnaround play and contrarian investment, and in addition you’re comfortable with the high risk that comes with the stock, then that’s an angle that may make quite a bit more sense. If its turnaround plan is successful, then given its incredibly discounted valuation, the stock could generate significant returns.
Must you invest $1,000 in Medical Properties Trust immediately?
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David Jagielski has no position in any of the stocks mentioned. The Motley Idiot has no position in any of the stocks mentioned. The Motley Idiot has a disclosure policy.
Why Investors Shouldn’t Buy This 13%-Yielding Stock for Its Dividend was originally published by The Motley Idiot