There's a lot of talk about Medical Properties Trust (MPW -1.10%) and whether its lofty dividend is safe. But investors shouldn't be focusing on just the payout because what's even more important is the business itself, and whether the stock can generate good returns and be a worthwhile investment to hang on to. When looking at its track record over the years, investors may be surprised and just how awful it has been. And the reality is, things may not look a whole lot better in the future.
Medical Properties' stock hasn't made for a great investment over the years
Last year was a particularly brutal one for Medical Properties Trust as shares of the real estate investment trust (REIT) nosedived by more than 50%. But over the past decade, it has been rare for the stock to outperform the markets, often significantly trailing the S&P 500's returns:
Data source: Yahoo Finance. Chart by author.
When a stock is incurring such significant losses, it more than outweighs the dividend income you're receiving. It's an important consideration for investors who are thinking about whether the dividend is safe because that could be a moot issue if the stock continues to be an underwhelming investment; even if the yield is 14%, what good will that be if the share price tanks by more than that?
To put this into another context, here's how much a $10,000 investment in the healthcare stock 10 years ago would be worth today when including dividends, versus how that same investment would have fared within the S&P 500:
Even with the high dividend yield, the stock hasn't paid off for investors, not by a long shot. Quite the opposites -- it's cost them money.
Although it may be tempting to buy now that the stock is trading near its 52-week low, there's no reason to be optimistic that it has bottomed or that the risk is lower.
Medical Properties isn't any better of a buy now
Medical Properties just isn't a stock that investors should be taking a chance on right now. The company's dividend may look sustainable but it has been having trouble with tenants. On its last earnings call, management said that Prospect Medical, which is one of the REIT's biggest tenants, did not pay its full rent in January and February.
The outlook simply isn't strong for Medical Properties as the risk remains high given the level of inflation and rising costs for hospitals. As a result, many investors have been short-selling the stock, betting against the company's shares (a recent research report by a short-seller certainly hasn't helped):
Data source: YCharts MPW Percent of Float Short
Contrarian investors will point to the potential for a short squeeze, but that is by no means a guarantee. After all, Medical Properties would need to prove its doubters wrong and generate enough bullishness for the stock to surge. In theory, this would inflict losses on short-sellers, forcing them to close their positions by buying shares that they borrowed and sold in hopes of repurchasing them for less after they plunge.
Medical Properties's adjusted funds from operations of $1.42 per share last year were strong enough to support the company's dividend payments, which total $1.16 per share over the course of a full year. However, it's the outlook that would have me worried. If there are signs tenants are struggling now, the situation could deteriorate further, especially if the economy slides into a recession, as some economists and analysts predict.
Investors should look elsewhere for high-yielding stocks
Even under the best-case scenario where Medical Properties can maintain its dividend, that doesn't mean the stock itself will be a good buy. It has chronically underperformed the markets and there is little reason to expect that will change in the future. There are better high-yielding stocks to choose from out there. Although they may not pay as much as Medical Properties, they can make for better and safer long-term investments.
