Is This 13%-Yielding Stock Due for a Dividend Cut?
A divided yield of more than 10% can appear enticing for investors who are seeking a high level of recurring income. And while a stock that pays that much can generate a lot of income for you, it may not be the safest option to put in your portfolio. Stocks with yields that high often come with inherent risks. If they were safe investments, investors wouldn't hesitate to buy up such high-yielding payouts, which, in turn, would likely boost their share prices and shrink their yields. When a stock's yield remains high, that usually means there's ample reason to remain cautious about the investment.
One high-yielding stock that isn't getting much love these days is Medical Properties Trust (NYSE: MPW), which pays investors nearly 13% in dividends. But the real estate investment trust (REIT) has been one of the riskier income stocks to own this year, and its shares are down about 5% so far this year. Could investors simply be bracing for another dividend cut?
Medical Properties Trust's focus has been on raising liquidity
The problem with Medical Properties Trust (MPT) is that the company has been selling off assets in order to improve its cash flow position. That's not a great sign for a dividend stock. It effectively tells investors that it isn't generating sufficient cash to maintain its day-to-day operations and pay its dividend.
Last week, the REIT announced the sales of 11 healthcare facilities in Colorado, which will net it $86 million. The company is going to use that money "to reduce debt and for general corporate purposes." And when the REIT announced its latest quarterly results on Aug. 8, it led with the news that it had executed $2.5 billion in liquidity transactions thus far in 2024. While that may be positive news for the business, highlighting the importance of raising liquidity isn't what dividend investors want to see, as it underscores the perilous condition of the company's financial results.
Earlier this year, one of MPT's key tenants, Steward Health, entered bankruptcy protection and announced it was going to try to sell all of its hospitals in an effort to pay down $9 billion in liabilities on its books. The problems and uncertainty relating to Steward have weighed on MPT's share price in recent years.
Medical Properties Trust's financials haven't been strong
MPT has been incurring losses in recent quarters and through the first six months of the year, its funds from operations (FFO) per share have totaled a negative $1.45 versus the previous year, when it was a positive $0.88. Its normalized FFO, which excludes the impact of impairment charges, total $0.47 for the year thus far. While that is positive, it's down significantly from $0.85 in the same period last year.
The good news for investors is that the rate is higher than the $0.30 per share that MPT has paid out during the first two quarters in dividends. That does suggest that the dividend may be sustainable, at least for the immediate future. But the danger is that with the company selling off assets and the future relating to Steward Health remaining unclear, it still may not offer investors much comfort.
Investors shouldn't rely on this dividend
MPT's dividend isn't safe. Although the recent FFO numbers may suggest there's a bit of safety there, the REIT is going through a tumultuous time, and as it sells off more assets, its numbers could deteriorate further, and a dividend reduction could be in the cards.
There are many better dividend stocks to own than MPT, and unless you have an extremely high risk tolerance, you're better off avoiding it as things can still get worse before they get better for the stock.
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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 13%-Yielding Stock Due for a Dividend Cut? was originally published by The Motley Fool