High Yield Dividend Healthcare Stock To Buy: With an aging population expecting ever more sophisticated advancements in curative technologies and treatment, Medical Properties Trust is well poised to benefit from the rising expansion of the healthcare industry.
Indeed, the sector is overflowing with an abundance of high-value companies today, as increasing demand for senior housing and specialized facilities helps spur its resurgent growth.
In fact, the space enjoys ongoing support from a raft of government initiatives, such as the Affordable Care Act and the 340B Drug Pricing Program, which increases funding for wellness programs and creates more incentives for providers to scale up their operations. This growth in spending – and the need for modern, energy-efficient buildings – is also contributing to the success of the medically-adjacent real estate business.
Moreover, MPW’s level-headed approach to management provides a unique opportunity for those seeking to tap into the stability and cash-generating potential of healthcare-related property investment.
Of course, as a REIT, Medical Properties is required to distribute a significant portion of its profits to shareholders, with money received by investors often eligible for favorable tax treatment to boot. On top of that, the firm’s dividend is exceptionally high, making it all the more attractive to those looking for solid income-producing securities.
But just how good is MPW? And what are the key factors to consider before investing in this most fascinating of businesses?
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A Robust Portfolio
Healthcare is an essential service that must be administered to a population regardless of current economic conditions. For MPW, this means that the industry provides a stable source of demand for its properties, even during downturns. Indeed, it’s this stability that is so highly sought after by the market and which is a key driver of growth in the healthcare real estate sector.
In fact, as Medical Properties explains in its latest investor update, the trust adheres to an underwriting process that identifies specific character traits in a facility that makes it desirable to any competent and experienced operator.
For example, these include Physical Quality – like a history of improvements to emergency departments and operating theaters – as well as Demographics, such as measurable patient demand growth or where a healthy work-life environment exists.
Furthermore, MPW places a lot of weight on de-risking its portfolio, claiming its $22.3 billion holdings in 2021 were the “most diversified” in the company’s history.
To demonstrate this, 54 operators now account for 92% of its assets – compared to just 30 operators in 2018 – while its single largest property represents less than 3% of its overall portfolio.
On top of that, Medical has also decreased its exposure to its largest operator, Steward Health Care, by 32%, which was a crucial development at the time due to prior issues regarding Steward’s credit line. These complications have since been resolved, and MPW now believes that changes to its cost structure will result in positive and sustainable free cash flow.
Interestingly, the company has only ever had to replace eleven operators over two decades, proving that its screening criteria are capable and efficient. Moreover, this diligence toward well-underwritten hospitals results in real estate staying leased – regardless of whether operators manage their businesses properly or not.
Unlike many other US-headquartered REITs, Medical Properties isn’t entirely reliant on the success of the American healthcare industry either. The company has a global mix of clients, with around 60% located in the States, 20% in the UK, and the rest spread across Europe, Australasia and South America.
Shareholder Returns
The measure of a quality REIT is the reliability and safety of its dividend – and on that front, Medical Properties scores remarkably high.
To begin with, MPW’s present yield stands at around 8.9%, which is especially good given the performance of the broader NYSE, but about in line with many of its peers. For instance, Omega Healthcare Investors, Inc. (OHI) sports a distribution of 9.2%, while Sabra Health Care REIT, Inc. (SBRA) returns a forward yield of 8.9%.
However, Medical Properties has increased its dividend every year for the last ten years, whereas Sabra and Omega have zero growth to speak of, with their payout remaining flat from 2021 to 2022.
The firm is also valued fairly cheaply. Its trailing twelve-month price-to-adjusted funds from operations (AFFO) is a pleasant 9.1x, while its AFFO growth is decent at 6.0% over the last three years.
Additionally, MPW’s response to the onset of COVID is also worth noting. Indeed, when six healthcare REIT competitors trimmed their payouts by a weighted average of 31% in 2020, Medical Properties Trust recorded a 12% cumulative increase in its own distribution throughout the period.
What Will The Future Bring?
The COVID-19 pandemic has had a mixed impact on the performance of healthcare-related real estate investment trusts over the last few years.
On the one hand, the increased demand for certain services committed to combating the virus has led to a positive impact on some of Medical’s properties. That said, the disruption to operations and reduced occupancy rates also meant decreased revenues, which were difficult or impossible to adequately offset.
However, the operating outlook is much improved. For instance, the company tightened its per share NFFO estimate for 2022 from a previous range of $1.78 to $1.82 to $1.80 to $1.82 instead.
While this renewed optimism might appear bizarre in an environment of high inflation, the current macroeconomic situation is to MPW’s benefit.
Indeed, rather than fearing possible defaults from its present tenants, Medical Properties actually gains from acquiring new ones. This is because any fresh agreements will factor in the price of inflation, with these contracts being worth more and thus of greater profit.
Looking forward, innovation and technology could play a major role in the growth of Medical Properties Trust. For example, the shift towards telemedicine has accelerated as a result of the pandemic, and healthcare REITs that invest in and incorporate these changes should expect to be rewarded in time.
All in all, MPW’s strong dividend and inflation-proof business make it a great stock pick for both income-minded and growth-oriented investors alike.
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