Investing in dividend stocks can be a safe way to grow your portfolio's value over time. The dividend income you earn can help pad your gains from an investment. One high-yielding stock that investors can buy right now is Medical Properties Trust (MPW -3.72%). The healthcare-focused real estate investment trust (REIT) has over 430 properties in its portfolio spanning 10 countries. And its yield is up to a mammoth 10%.
But the stock itself has nosedived 50% this year because rising interest rates have made investors bearish on REITs, which often carry lots of debt. However, the recent performance isn't necessarily indicative of Medical Properties' track record over the years. Below, I'll look at whether investing $10,000 into the stock a decade ago would have paid off for investors.
The stock hasn't moved much in 10 years
At the start of November 2012, Medical Properties was trading at about $11.50 per share. That's around the same price as investors can buy the stock for right now. And there haven't been any stock splits in the company's history.
Although Medical Properties' revenue has increased substantially from just over $200 million in 2012 to more than $1.5 billion as of last year, the stock hasn't performed well. That's not to say its valuation hasn't increased; the market cap has risen, but the REIT has also issued plenty of shares during that time, which is a key reason the stock price has struggled.
MPW Shares Outstanding data by YCharts
Not generating enough free cash flow
It's easy to see why Medical Properties has needed to raise shares -- the REIT simply hasn't been bringing enough in free cash flow to support its dividend payments. The chart below shows how much in free cash the business has left over after paying dividends. And in many periods, that amount has been negative.
Fundamental Chart data by YCharts
It's a troubling situation that, if it doesn't improve, may lead to more dilution for shareholders and continual lackluster gains in the years ahead.
Have the dividend payments been worth it?
If you invested $10,000 into Medical Properties stock 10 years ago, the value of your investment would be largely unchanged given the stock's performance was flat during that period. But to get a true picture of the investment returns, it's important to also include the dividend, since that is a key reason investors buy shares of Medical Properties.
When looking at the stock's total return, which includes dividends, investors would have achieved returns of more than 80% in the past 10 years. That means a $10,000 investment, with the dividends reinvested, would be worth more than $18,000 today. It's a much better return, but it still lags behind the S&P 500, as a $10,000 investment into the index would have grown to more than $33,000 when factoring in dividends.
The dividend has helped make up for the underwhelming performance of Medical Properties' stock over the past decade, but it hasn't been enough to make it a better investment than simply buying a fund that mirrors the S&P 500.
Is Medical Properties stock a buy today?
For investors who crave a dividend, Medical Properties may still be a tempting stock to buy. At just 5 times earnings and 0.8 times book value, the healthcare stock is trading at a steep discount.
I'm optimistic that the shares can recover because Medical Properties' business remains strong: The company has posted an operating profit of more than $1 billion over the trailing 12 months and its payout ratio sits at under 60%. Although it may be unnerving to watch the stock's tailspin, the fundamentals suggest that it can and should recover.
If you're willing to buy and hold for the long term, Medical Properties could prove to be a much better buy than it has been over the past decade because its low valuation and recent efforts to sell properties and bolster its balance sheet should make it more likely to achieve positive returns in the future.
