HomeBusinessThis is great news for Medical Properties Trust and its 16% dividend

This is great news for Medical Properties Trust and its 16% dividend

Reliance on medical properties (NYSE: MPW) has been a polarizing stock to own and watch in recent years. It has an incredibly high dividend yield of 16%, which could be attractive to investors looking for a high payout. But the healthcare-focused real estate investment trust (REIT) also recently cut its dividend payments as it encountered problems with tenants paying their rent on time.

The REIT has resorted to selling assets in an effort to increase its liquidity and improve its financial position. This could give the company some much-needed breathing room and potentially allay some of the fears surrounding owning shares. And investors recently got some good news on that front.

Asset sales went better than expected

On April 12, Medical Properties Trust (MPT) announced that it had sold a majority stake in five Utah hospitals. The transaction will generate cash proceeds of approximately $1.1 billion for the REIT. The company plans to use the money to pay down debt and for general corporate purposes.

MPT previously planned to raise $2 billion through this type of liquidity transaction. But given its recent transactions, the progress it has made and the state of ongoing negotiations, it is confident it will exceed its $2 billion target for this year.

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This is a positive development for the company, indicating that MPT’s strategy is developing well. While that won’t eliminate all the risks the company faces, adding more liquidity than expected could mean the difference between maintaining the current dividend and having to cut it again. At $0.15, the quarterly dividend that MPT currently pays is almost half of the amount of a year ago ($0.29).

Medical Properties Trust still faces risks

For MPT, investors should keep a close eye on the stock as it has proven to be a volatile investment. Over the past 12 months, the healthcare stock has lost half its value as investors have grown concerned about the company’s viability, especially as interest rates remain high.

Last year, depreciation and amortization crippled earnings, with the REIT posting a net loss of $556.1 million. REITs are normally safe bets to make a profit, and most of the time it’s a matter of how many they will generate revenue; losses are certainly not the norm. MPT’s normalized operating funds (FFO) per share was $1.59 for the year, excluding depreciation and unbilled rent, but even that was still 13% less than the $1.82 normalized FFO per share reported the year before. The good news, however, is that $1.59 is high enough to support the dividend, which would only be $0.60 per share annually.

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The company ended the year with just under $10.1 billion in debt, which wasn’t a major improvement from the nearly $10.3 billion it reported a year earlier. But with interest rates not coming down, pressure is increasing on MPT to reduce some of that risk and exposure, especially as the company has had problems with tenants, including Steward Health.

MPT is expected to announce its latest results on May 9, at which point investors will get an up-to-date view of how the company is doing and how safe the dividend looks.

Should you buy Medical Properties Trust shares?

MPT is not a stock that I would recommend that typical dividend investors invest in. Until there is a clear indication that the problems with struggling tenants are long gone and that the dividend may be sustainable for the foreseeable future, investors are still better off holding off on investing in the stock. While FFO looks good right now, earnings will inevitably look different as the company slims down its portfolio.

However, if you are a contrarian investor and have a high risk tolerance, chances are this is an attractive investment. Interest rates could fall this year, which should make REITs more attractive. MPT’s asset sales are progressing well, which is a positive development that indicates the company is effectively executing its turnaround strategy. As a potential inflection point, MPT could make for an intriguing buy given its low valuation: It trades at less than 0.4 times its book value. There could be significant upside for the stock if MPT’s turnaround is successful, but this isn’t your typical dividend stock, nor is MPT suitable for risk-averse investors.

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Should You Invest $1,000 in Medical Properties Trust Now?

Consider the following before purchasing shares in Medical Properties Trust:

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David Jagielski has no position in the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This is great news for Medical Properties Trust and the 16% dividend was originally published by The Motley Fool

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