Medical Properties Trust (MPW 1.91%) pays an eye-popping 14% dividend yield right now. While it's certainly an attractive payout, it comes with significant risks. Shares have nosedived 62% over the past year as investors are concerned with the stock -- and rightfully so. Here's why you'll want to be extra cautious before deciding to invest in it.

The REIT's top tenants may be struggling

If you're investing in a real estate investment trust (REIT), the one thing you don't want to see is the word "default," or even the mere suggestion that a major tenant isn't able to pay rent. A tenant falling behind on rent and unable to pay in full is a big risk that could undermine the REIT's ability to continue paying its current dividend. 

What was concerning on the company's latest earnings call was news that one of its top tenants, Prospect Medical, did not pay its full rent. And what I found even more concerning was that the healthcare-focused REIT didn't want to disclose if Prospect had paid any at all.

Rather than provide some assurance to investors that the tenant paid half or most of the rent, it chose to not disclose anything at all, which can often lead to investors assuming the worst. And that's problematic because as of the end of last year, the REIT said that its largest tenants were as follows:

Tenant Percentage of Total Assets
Steward 24.2%
Circle 10.5%
Prospect 7.5%
Priory 6.6%
Springstone 5%

Source: Company filings.

Steward is another tenant that investors have grown concerned about since it recently extended its credit agreement with lenders until the end of this year. With two of Medical Properties' top tenants potentially not in great shape, it's not surprising that the shares have nosedived more than 60% in the past 12 months. Even a 14% dividend yield would do little to offset those kinds of losses for investors.

Why the situation may get even worse

When Medical Properties reported earnings in February, it noted that its quarterly dividend payment of $0.29 was now 85% of its adjusted funds from operations per share. That's a fairly high percentage of an adjusted calculation. In situations like these, I prefer to look at cash flow to see how much money a company is generating versus how much it is paying out in dividends.

And when looking at free cash, there isn't a huge buffer right now for Medical Properties:

Fundamental Chart Chart

Fundamental chart data by YCharts.

Things have been worse for the company, notably during the early stage of the pandemic. But even with a return to normal for the most part, the cash flow situation still isn't great.

While the REIT still looks OK right now, the above chart shouldn't give investors much comfort. The big risk is that a recession hasn't hit yet, and if and when it does, more tenants could be in trouble.

Investors shouldn't take a chance

Shares of Medical Properties have been sinking like a stone of late, and the risk is that they could continue to fall lower. While the REIT does need to pay out 90% of its earnings to shareholders, last quarter, it reported a net loss of $140.5 million as it incurred hefty impairment charges totaling just under $283 million.

Until it can show that it's on a more solid footing, investors should avoid the REIT as there are many other high-yielding stocks out there to choose from today. And although they may have more modest yields, they can be safer investments in the long run.