Investing in dividend stocks isn’t always as easy as it appears. While it may be tempting to think about how much dividend income you might collect from a high yield, it’s also important to consider the risk. Even seemingly safe stocks can struggle under challenging economic circumstances.
Medical Properties Trust (NYSE: MPW) has endured more than its share of struggles over the past few years. Tenants of the hospital-focused real estate investment trust (REIT) have faced challenges due to the pandemic, and that has affected the REIT’s financials as well.
Last year, Medical Properties Trust (MPT) slashed its quarterly dividend from $0.29 to $0.15. But with its struggles still not appearing to be over, could it be possible that investors endure yet another rate cut in 2024?
Did the company just issue a warning shot to investors?
It has only been a couple of weeks into the new year, but shares of MPT are already nosediving. Down 30% to start January, the REIT spooked investors when it issued an update on Jan. 4 about one of its troubled tenants, Steward Health. While MPT attempted to calm investors about the tenant, saying that it would give Steward Health a bridge loan and work on recovering uncollected rent, the update only sent investors into panic mode.
While MPT has tried to demonstrate to investors that its non-Steward portfolio is achieving “robust revenue,” it’s a concern to even frame any diversification or stability in such a way, suggesting that investors should look past the key tenant. Many investors may see the recent update as a warning that another dividend cut may be on the table, given the exposure that the REIT has to Steward.
Of MPT’s $19 billion in total assets, just under 20% is related to Steward (as of its most recent quarter, ended on Sept. 30, 2023). The next-largest operator accounts for nearly 11% of MPT’s total assets.
The dividend may not appear as safe as it did last quarter
Many REIT investors focus on funds from operations, or FFO. This metric is often used in place of net income to evaluate the safety of a dividend as a REIT excludes one-time gains and losses, as well as depreciation and amortization expenses that don’t impact cash.
In MPT’s most recent quarter, it reported FFO per share of $0.36. That was down from $0.42 in the prior-year period, but it’s well in excess of the $0.15 that it pays its shareholders every quarter, which could suggest that the current dividend is manageable.
Investors, however, shouldn’t take too much comfort in those results. The recent update may mean that the situation involving Steward has worsened, and that future results may not be as strong. MPT has also stated recently that it will be evaluating possible divestiture opportunities as a way to improve its financials and overall liquidity. The REIT has been selling assets, and more divestitures combined with Steward’s struggles could result in a much leaner bottom line.
Investors shouldn’t take a chance on the dividend
Because of the stock’s early struggles in 2024, MPT’s yield is now up to 17%. Although it might seem unlikely for the REIT to cut its dividend again this year, investors shouldn’t assume that just because MPT reduced the payout last year, another cut isn’t possible again. But it may be too early to say how probable of a scenario that is just yet.
Income investors won’t know how bad the situation is until the company’s next earnings report, which is likely to come out next month. Until then, the best option may be to simply avoid MPT given the risk and volatility surrounding the REIT and its dividend.
Should you invest $1,000 in Medical Properties Trust right now?
Before you buy stock in Medical Properties Trust, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Medical Properties Trust wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
See the 10 stocks
*Stock Advisor returns as of January 8, 2024
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Is This 18%-Yielding Dividend on the Verge of Getting Cut? was originally published by The Motley Fool
Credit: Source link
