Is Medical Properties Trust Dividend Safe?

Few stocks over the past year highlight the danger of buying an attractive dividend yield as much as Medical Properties Trust (NYSE:MPW). Down 77.3% over the past twelve months compared to the 23.7% gain in the S&P 500 over the same time period, shareholders are understandably frustrated by the losses incurred.

The question is whether Medical Properties Trust will bounce back or the declines over the past year are just the start of a death spiral. For new investors, a big topic to consider now is whether the 19.5% yield is sustainable?

Why Did Medical Properties Trust Stock Fall?

The demise of MPW share price over the past twelve months is not rooted in a single factor but many all combined.

The first obvious one is the slowdown in revenues. Through most of 2020 to 2022, sales had grown virtually each quarter on a year-over-year basis but by 2023 a material reversal took place in the top line. Double-digit percentage revenue declines were reported over the past 5 quarters which took a toll on investor sentiment.

Shareholders were also punished when the Board of Directors took the drastic step to slash the dividend by almost 50% from $0.29 per share to $0.15 per share. Even after doing so the current yield is close to 20%, a level so high that it should automatically raise red flags as to its sustainability.

Management has attempted to assuage fears that the income statement is fragile by sharing that the top line is “robust.” While it is the most important line item of all, what matters most is whether there are any bright forecasts on the horizon.

In that regard, investors can cling to some hope that analysts project revenues to rise by a little over 10% in the coming two years. If realized, that should stabilize the income statement. But shareholder woes extend to the balance sheet too, and that’s where pessimistic sentiment is justified.

With $9.7 billion of long-term debt and just $340.1 million in cash reserves, it’s no wonder MPW share price has stumbled and fallen so fast over the past year. Rolling over debt liabilities to higher rates poses enormous risks to the viability of the enterprise as a going concern in the long-term and shareholders fleeing the stock is symptomatic of the prevalent fears.

Is Medical Properties Trust Dividend Safe?

Medical Properties Trust dividend is at risk of being cut again this year as it was last year from $0.29 per share to $0.15 per share.

The current yield of 19.54% is likely unsustainable given that the debt/cash ratio is around 27x at this time, meaning that any change in interest rates when rolling over debt obligations has the potential to severely impact liquidity.

Further hurting the prospects for the dividend is that, for the coming year, analysts expect revenues to fall in spite of management’s claims that they are robust.

The slowdown in revenues already has materially affected profitability and analysts are also forecasting earnings to trend lower in the coming period, none of which is helpful to shareholders hoping the dividend is sustained.

Is Medical Properties Trust a Buy?

The list of negatives surrounding this REIT are numerous and concerning. Over the last few months, quarters and even years, the share price has fallen sharply. 

While dividend have been sustained for 19 consecutive periods, the streak masks the big cut last year which catalyzed a fast share price tumble.

If there were any positives to cling to it’s that the low price has made some key multiples look attractive. For example, MPW appears attractive on EBIT and EBITDA multiples. It’s also oversold technically on the Relative Strength Index and theoretically due a bounce. The price-to-book multiple is also low while the dividend is highly enticing.

Nonetheless, it’s hard to argue that Medical Properties Trust is a compelling buy at this time because balance sheet fragility could torpedo the business as a whole. It seems almost inevitable given the high debt levels that executives will be forced to slash the dividend further to shore up the liquid reserves.

At this time, Medical Properties Trust is arguably most appropriate for deep discount seekers on the hunt for a bargain, yet who recognize their investments are akin to buying call options, meaning that the upside could be enormous but the downside could wipe out their entire bets.

The Dangers Of High Dividend Paying Stocks

Few stocks exemplify the dangers of buying high dividend paying stocks more than Medical Properties Trust over the past year.

It’s very easy to get enticed by the high yield but what matters most is the total return and, over the past year, the loss in stock value has more than overwhelmed the dividend gains.

Looking to the future, the enormous yield approaching 20% is highly enticing too but it’s very possible that it too is insufficient to offset share price declines in the coming year.

Even if the stock does bounce back and it turns out that, in hindsight, this is an optimal time to buy, the strategy in aggregate of buying high yielding stocks is fraught with danger because typically some fundamental or structural weakness underpins the balance sheet.

Another way of describing that is the solvency of the firm is in question when cash levels are at risk and debt levels spiral higher. As Peter Lynch famously observed, the best investments have robust balance sheets. Where they are brittle, they are prone to break. That’s usually a playground worth avoiding.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.