Why Investors Shouldn’t Buy This 13% Yield Stock for Its Dividends

Dividend stocks that offer high yields to investors tend to be attractive because the income generated for shareholders is higher than average. However, high returns often come with high risks. If the dividend turns out to be unsustainable and the company cuts its dividend, investors may find themselves holding a stock that suddenly doesn’t look very good.

Medical Property Trust (MPW -4.25%) We are currently paying investors a fairly high rate of return of 13%. It’s much higher than that. S&P 500 The average is only 1.4%. However, given the changes the company is currently experiencing, that dividend may not be the safest choice for income investors.

Still, if you don’t mind the increased risk, there are other, potentially more attractive reasons to buy the stock.

Medical Properties Trust’s current valuation is very cheap.

Medical Asset Trust is a real estate investment trust (REIT) focused on hospitals. Since the pandemic began, it has been plagued by tenants struggling to pay rent, including Steward Health Care. The issue was so concerning that the REIT announced plans earlier in the year to help Steward improve its liquidity and strengthen its balance sheet.

These concerns have made Medical Properties Trust less of a safe investment in recent years. These risks are evident in falling stock prices. Since 2021, the REIT’s value has plummeted nearly 80%. The stock is currently trading at just 0.4 times book value and a price-to-earnings multiple of less than 7. That’s why these deep discounts make it a potentially attractive contrarian investment.

If Medical Properties Trust can turn things around, the upside could be huge.

Medical Properties Trust had a brutal 2023, with a net loss of $556 million due to significant write-offs and impairment charges. This is not what you would expect from a REIT. Because a REIT’s primary job is to collect rent from tenants, they are generally a fairly safe investment.

If no additional impairment charges are incurred this year and the company is successful in helping Steward execute on its liquidity improvement plan, 2024 has the potential to be an even better year for the company.

It is also considering selling assets that could add $2 billion to its own liquidity as a way to increase safety and stability. The downside is that since there are fewer assets in the portfolio, the rents generated may not be enough to support the current dividend, which could lead to another reduction (the REIT already reduced its dividend last year).

However, if asset sales and improved liquidity ultimately make the business a safer investment overall, it could make REITs a better buy over the long term.

Should I use Medical Properties Trust?

This is not a REIT suitable for most dividend investors. Uncertainty about payouts means they cannot be trusted and could lead to disappointment in the future.

But if you are watching Medical Property Trust This is an angle that may make much more sense if you are comfortable with the high risk that comes with stocks as a possible turnaround play and contrarian investment. If the turnaround plan is successful, the stock could generate significant returns given its heavily discounted valuation.