Looking for passive income? You might want to check out investing in the healthcare sector. After all, healthcare makes up nearly one-fifth of the U.S. economy. Healthcare services are a must-have priority for everyone.
Many healthcare stocks are also well-known for their attractive dividends. Some are definitely better than others, though. Here's arguably the best healthcare dividend stock on the planet for generating passive income.
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An under-the-radar star
Medical Properties Trust (MPW -1.51%) probably isn't the first name that comes to mind when thinking about healthcare dividend stocks. It might not even be on your list at all. But it should be.
Based in Birmingham, Alabama, Medical Properties Trust was formed in 2003 with the purpose of acquiring and developing healthcare facilities. In 2004, it began operating as a real estate investment trust (REIT).
Medical Properties Trust focuses on long-term triple-net leases of facilities to healthcare operating companies. These leases require its tenants to take on most of the costs of maintaining the properties.
The company also sometimes loans money to healthcare operators with their real estate serving as collateral. Every now and then, Medical Properties Trust even acquires a stake in some of its tenants that allows it to share in profits and losses.
By the numbers
Why is this REIT the best healthcare dividend stock on the planet for generating passive income? For one thing, its dividend yield stands at a mouthwatering 6.4%.
Granted, there are a handful of healthcare-related companies with higher yields. Spanish pharmaceutical company Grifols' (GRFS -1.39%) dividend yield tops 8%. Two other healthcare REITs, Omega Healthcare Investors (OHI -0.03%) and National Health Investors (NHI 0.17%), have yields of 9.85% and 6.74%, respectively.
But dividend yields aren't the only thing that investors should evaluate. You'll also want to look at a company's ability to fund its dividend program. On this front, Medical Properties Trust easily tops the other high-yield healthcare companies with a significantly lower dividend-payout ratio.
It's also important to check out the total returns of the stocks. Again, Medical Properties Trust ranks as the clear leader over the past one year, three years, five years, and 10 years.
GRFS Total Return Price data by YCharts.
Medical Properties Trust's advantages stem from its strong underlying business. The REIT owns nearly 440 properties in nine countries, making it one of the world's largest owners of hospital facilities. More than 70% of its assets are general acute-care hospitals. And no single property makes up more than 3% of its total assets.
A few risks
No stock is risk-free -- including Medical Properties Trust. The company's fortunes hinge on the success of its tenants. While hospital operators are usually reliable tenants, they can encounter financial difficulties.
Medical Properties Trust's four largest tenants represent nearly half of its gross assets. The REIT is, therefore, more exposed to any financial issues that these big hospital operators experience.
Also, roughly 40% of Medical Properties Trust's assets are outside of the U.S. The company doesn't have as much experience investing in international healthcare properties.
You might wonder if skyrocketing inflation presents a risk to Medical Properties Trust. Actually, inflation doesn't present a huge threat to the REIT. The triple-net leases require tenants to absorb any rising costs for maintenance, insurance, and taxes. Medical Properties Trust also has inflation-based or fixed-rent escalators built into most of its leases.
Best on the planet
Medical Properties Trust has some risks, but I don't see it as a high-risk stock. My view is that the combination of its high dividend yield, impressive stock performance, and strong underlying business makes this REIT worthy of the status of best healthcare dividend stock on the planet.
