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Is Now A Good Time To Buy Medical Properties Trust And Lock In An 8.2% Dividend?

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Income investors are always on the hunt for good stocks that for one reason or another have recently been out of favor, creating a scenario for a higher dividend yield along with possible future appreciation as the stock bounces back. Buying a stock on a decline sometimes involves a bit of courage, but the ability to lock in long-term higher yields makes the decision easier for most investors.

At the moment, Medical Properties Trust Inc. (NYSE: MPW), a Birmingham, Alabama-based real estate investment trust (REIT) that owns and net-leases hospitals, fits that description well. Medical Properties has a well-diversified portfolio of 46,000 licensed beds in 447 facilities in 10 countries. The company was formed in 2003 and its initial public offering (IPO) launched in 2005.

A breakdown of its facilities is as follows:

General acute-care hospitals, 72%

Behavioral health facilities, 11%

Inpatient rehabilitation hospitals, 9%

Other facilities, 8%

Medical Properties recently declared a 29-cent per quarter dividend for its latest quarter, and while the ex-dividend date has passed, investors can now purchase the stock for a lower price with the dividend payment already being factored in. Going forward, the dividend will yield over 8%.

Medical Properties was near $23 as recently as January, but several factors have contributed to its nearly 40% decline since then. First, a Wall Street Journal article pointed out that Steward Health Care System, Medical Properties’ largest tenant, was having financial difficulties. Higher interest rates have also negatively impacted Medical Properties’ ability to acquire more properties. Management tempered its previous prediction of a $1 billion to $3 billion range of acquisitions by noting it would be more likely to fall on the lower end of that range.

Furthermore, a reduction in second-quarter revenue and earnings from the first quarter of 2022, along with management’s reluctance to increase its annual forecast were other factors contributing to the falling price. A Barclays analyst’s recent lowering of the price target to $23 from $27 per share didn’t help either.

But looking at a stock from a long-term historical point of view is key to deciding whether an off year could just be temporary. Twice in the past five years, Medical Properties has bounced back from single-digit lows to return to the mid-$20s range. While that may be a bit too volatile for some investors, it does portend a more favorable outlook for Medical Properties to overcome its present adversity.

The recent quarter wasn’t all bad, though. Revenue of $400.23 million surpassed the year-over-year figure of $381.79 million. And this quarter’s funds from operation (FFO) increased to 46 cents per share from 43 cents a year ago, so the current dividend of 29 cents is well covered and could even be increased in future quarters. Over the past five years, the dividend has grown by 20% to its current payout.

The one caveat would be if Steward Health Care Systems should either default or not be able to pay its rents because that would impact Medical Properties’ bottom line for some time. Some of Steward’s hospitals are losing money, while others are still doing well and the total rents to Medical Properties are still being paid.

Despite the recent price decline below $14 and a stable and reliable 8% dividend yield, long-term income investors may want to wait for another quarter or two to assess the stability of Steward’s ability to meet its obligations before acquiring Medical Properties stock.

Real estate is one of the most reliable sources of recurring passive income, but publicly-traded REITs are just one option for gaining access to this income-producing asset class. Check out Benzinga’s coverage on private market real estate and find more ways to add cash flow to your portfolio without having to time the market or fall victim to wild price swings.

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