Better High-Yield Dividend Stock: IBM or Medical Properties Trust?

Some companies never compete against each other in the marketplace. However, they do compete, in a sense, for investors.

International Business Machines (IBM -8.25%) and Medical Properties Trust (MPW -0.22%) provide a good example of this. IBM, of course, is a technology company that's been around for more than a century. Medical Properties Trust is a real estate investment trust (REIT) that leases properties to hospital operators. Both stocks attract heavy interest from income investors because of their exceptionally high dividend yields.

Which is the better high-yield dividend stock right now? Here's how IBM and Medical Properties Trust (MPT) stack up against each other.

Dividend yield

MPT's market cap of $5.2 billion is only a fraction of IBM's market cap of over $114 billion. However, the healthcare REIT towers over the tech giant when it comes to their respective dividend yields.

IBM's dividend yield of over 5.4% is much higher than it's been throughout much of the last two decades. It doesn't come close, though, to MPT's sky-high dividend yield of 14%, which has been pushed higher because of the REIT's share price plunging.

Dividend sustainability

A juicy dividend yield is meaningless if you can't depend on it. How sustainable are the dividends for IBM and MPT?

At first glance, IBM's dividend might appear to be in jeopardy. The company's dividend payout ratio is over 300%, which is an astronomically high level.

However, IBM's first-quarter update probably reassured investors that its dividend is still safe. Importantly, the company generated greater free cash flow in Q1 than it did in the prior-year period. Last year, IBM's free cash flow was well above the amount needed to cover its dividend.

Some investors could also be worried about MPT's dividend. Several of the REIT's tenants face significant financial challenges. One is behind on rent payments so far this year. But MPT's management believes that the company can continue funding the dividend at current levels. As was the case with IBM, MPT's Q1 results showed that the dividend isn't in imminent peril.

Growth prospects

IBM reported paltry year-over-year revenue growth of 0.4% in Q1 2023. However, the number looked somewhat better on a constant-currency basis with a 4.4% increase.

The company expects its revenue to grow between 3% and 5% in full-year 2023 on a constant-currency basis. But it looks for only flat revenue overall as a result of foreign exchange headwinds.

Over the longer term, IBM could enjoy stronger growth with surging demand for artificial intelligence technology. The company also ranks as one of the leaders in quantum computing, which could be an enormous market in the future.

While IBM's near-term growth prospects aren't exactly impressive, they're better than MPT's. The REIT's revenue fell nearly 15% year over year in Q1. Normalized funds from operations, arguably the most important financial metric for MPT, sank 21% lower.

Don't expect MPT's growth to improve anytime soon. CEO Ed Aldag stated in the company's Q1 conference call: "Until the global markets stabilize, we do not anticipate making any significant acquisitions."

Valuation

Both of these stocks appear to be attractively valued. IBM's shares trade at around 13 times forward earnings. MPT's forward earnings multiple is close to 10.5.