Dividend stocks that offer investors high yields tend to be attractive because they deliver better-than-average returns to shareholders. However, high yields often come with high risk. If the dividend proves to be unsustainable and the company cuts it, investors could suddenly find themselves holding a stock that doesn't look that great.
Medical Property Trust (New York Stock Exchange: MPW) It currently pays investors a fairly high yield of 13%.it is far above S&P500 The average is only 1.4%. However, given the changes the company is currently facing, its dividend may not be the safest option for income investors.
Still, if you can stomach the increased risk, there are other potentially more attractive reasons to buy stocks.
Medical Properties Trust's valuation is currently very low.
Medical Properties Trust is a hospital-focused real estate investment trust (REIT). Tenants including Steward Healthcare have struggled to pay rent since the pandemic began. The issue was so alarming that REITs announced plans at the beginning of the year to help Steward improve liquidity and strengthen its balance sheet.
Because of these concerns, medical property trusts have not been safe investments in recent years. The risk is clear from the decline in stock prices. Since 2021, REIT valuations have plummeted by nearly 80%. The stock currently trades at just 0.4 times book value, with a price-to-earnings ratio of less than 7 times. This deep discount makes this a potentially attractive contrarian investment.
If Medical Properties Trust can turn things around, there could be big gains
Medical Properties Trust is coming off a tough 2023 in which it suffered a net loss of $556 million as a result of significant writedowns and impairment charges. This is not what you would expect from a REIT. Since a REIT's main job is to collect rent from tenants, it's usually a fairly safe investment.
2024 could be a better year for the company if no further impairment charges are incurred this year and the company is successful in helping Stewards implement its liquidity improvement plan.
The company is also considering asset sales that could increase its liquidity by $2 billion as a way to increase safety and stability. The downside is that with fewer assets in the portfolio, the rents the company generates may not be enough to support the current dividend, and could be further reduced (the REIT already cut its dividend last year). are doing).
But REITs may be a better buy in the long run if asset sales and improved liquidity ultimately make the overall business a safer investment.
Why not give Medical Properties Trust a try?
This is not a REIT suitable for most dividend investors. Payment uncertainty means unreliability and potential disappointment in the future.
However, if you're looking at this: Medical Property Trust If there is potential for a reversal or contrarian investment and you can tolerate the higher risk associated with the stock, it may be a more logical angle. If the turnaround plan is successful, the stock could generate significant returns given its incredibly cheap valuation.
Should you invest $1,000 in Medical Properties Trust now?
Before purchasing Medical Properties Trust shares, consider the following:
of Motley Fool Stock Advisor Our analyst team has identified what they believe Best 10 stocks What investors can buy right now…and Medical Properties Trust wasn't one of them. These 10 stocks have the potential to generate impressive returns over the next few years.
stock advisor provides investors with an easy-to-understand blueprint for success, including guidance on portfolio construction, regular updates from analysts, and two new stocks each month.of stock advisor Since 2002, the service has more than tripled S&P 500 returns*.
See 10 stocks
*Stock Advisor will return as of April 4, 2024
David Jagielski has no position in any stocks mentioned. The Motley Fool has no position in any stocks mentioned. The Motley Fool has a disclosure policy.
“Why Investors Shouldn't Buy This 13% Yield Stock for its Dividend” was originally published by The Motley Fool.
