Investors can boost their retirement income with dividend stocks. Many stocks don't pay out enough in dividends to significantly impact income. However, some offer especially juicy dividend yields that can make a big difference in retirement.
You can include telecom giant AT&T (T 1.02%) and healthcare real estate investment trust (REIT) Medical Properties Trust (MPW -1.10%) in the latter group. But which is the better high-yield dividend stock? Here's how AT&T and Medical Properties Trust stack up against each other.
A clear winner on dividends alone
Medical Properties Trust is the clear winner if you only look at the dividends for these two stocks. Its dividend yield currently tops 14.4%. That's more than double AT&T's dividend yield of nearly 6.3%.
When it comes to consecutive dividend increases, Medical Properties Trust also holds the advantage, at least for now. The hospital REIT has increased its dividend for eight consecutive years. AT&T, on the other hand, cut its dividend payout by nearly half in 2022.
The story was different not long ago, though. For decades, AT&T ranked among the companies with the longest streaks of dividend increases. However, the company announced a steep dividend reduction with its spinoff of WarnerMedia last year.
Is AT&T's dividend safe?
But AT&T's recent past raises questions about the sustainability of its dividend at current levels. Some might be worried that AT&T's first-quarter update makes its dividend riskier. The company missed analysts' revenue estimates in the quarter but narrowly topped the consensus for adjusted earnings per share.
Arguably the most concerning metric for income investors was that AT&T generated only $1 billion in free cash flow in Q1. To put that into perspective, the telecom giant paid out dividends of nearly $9.86 billion last year. AT&T certainly isn't on track at this point to deliver the free cash flow needed to fund the dividend at current levels.
However, AT&T CFO Pascal Desroches said in the Q1 conference call that the company still believes it's on track to hit its guidance of free cash flow of $16 billion this year. Wall Street seems to agree that AT&T can attain its target. If they're right, the company's dividend should be safe.
Is Medical Properties Trust's dividend safe?
Some investors could also be jittery about Medical Properties Trust's ultra-high dividend yield. Several of the REIT's top tenants have faced financial challenges. The biggest concern right now is that Prospect Medical is behind on its rent payments so far in 2023. Prospect accounted for 11.5% of Medical Properties Trust's total revenue in the fourth quarter of 2022.
Medical Properties Trust projects normalized funds from operations (NFFO) of between $1.50 and $1.65 per share this year. The low end of that range should be sufficient to fund the dividend at the current level. The company, though, thinks that this low NFFO is only a "remote possibility" because it expects to recover at least some money from Prospect in 2023. And over the next 12 to 18 months, Medical Properties Trust believes that it will recoup most of the money that Prospect owes.
The REIT could have to refinance much of its debt at higher interest rates over the next few years, however. That would increase the company's interest expenses, which could in turn make it more difficult to avoid a dividend cut.
Better high-yield dividend stock?
My view is that most income investors would be better off going with AT&T. The telecom company's revenue is growing (albeit slowly), while Medical Properties Trust's revenue has declined. I expect that the safety of AT&T's dividend will improve over the next few years as the company reduces its leverage.
However, I think that some aggressive investors could be interested in Medical Properties Trust. The narrative for the stock has been heavily negative over the last year or so. But the financial outlook for several of the REIT's major tenants has improved. It wouldn't take much good news to provide a catalyst for a short squeeze of the stock with 27% of its float sold short.
