Ultra-high dividend yields often reflect a stock price that has tanked. That's true for Medical Properties Trust (MPW 1.15%). Its dividend yield tops 14%. But that yield is largely the result of a share price that has plunged more than 50% over the past 12 months.

I bought shares of the healthcare real estate investment trust (REIT) earlier this year and didn't feel the full brunt of that decline. However, my position is still in the red. Am I considering selling this 14%-yielding dividend stock? Not at all. Here's why.

Its dividend should be safe 

Medical Properties Trust (MPT) provides a cushion of sorts with its high dividend. For example, my loss in the stock will be more than halved if the stock goes nowhere for the rest of the year and the dividend stays at the current level. If that scenario continues throughout most of 2024, my total return will be positive.

But will MPT be able to keep paying the dividend at the current level? Raymond James analyst Jonathan Hughes thinks the dividend is safe. I agree. 

The healthcare REIT pays $1.16 per share in dividends on an annualized basis. MPT expects to generate normalized funds from operations (NFFO) of between $1.50 and $1.61 in 2023. That's more than enough to fund the dividend this year even at the low end of the range. 

Some might worry that MPT could cut its dividend in the future when the company has to refinance more of its debt. That's possible. However, it's important to know that the company's debt matures over several years. Its leases to hospital operators also include built-in escalators that help offset much if not all of the increased cost of borrowing resulting from higher interest rates.

Its outlook is improving

MPT's steep sell-off was caused primarily by several of its key tenants facing financial difficulties. Pipeline Health had to reorganize through a Chapter 11 bankruptcy process. Prospect Medical Holdings is behind on its rent so far in 2023. A significant increase in interest rates also contributed to investors' uneasiness about the stock.

But the REIT's outlook appears to be improving. Things are looking up for hospital operators, in general. MPT CEO Ed Aldag noted in the company's first-quarter conference call that tenants' admissions and surgical volumes are rising -- both positive signs. 

Pipeline's reorganization plan will enable MPT to recover all the money it's owed plus interest on any late payments. The REIT expects to fully recover its investment in Prospect by mid-2024 as well. 

MPT's sale of its Healthscope portfolio in Australia is helping it to pay down some of its debt. The company closed on the sale of seven of those hospitals in May and expects to soon close the rest of the deal for four other properties.

Margin of safety

Raymond James' Hughes recently wrote to clients that MPT offers a "margin of safety" at its current valuation. He's exactly right, in my opinion.

MPT stock trades at close to 9.8 times forward earnings. The financial conditions for its tenants are improving. Interest rates aren't likely to increase much more and could even begin to come down if the U.S. enters a recession as is widely expected.

The average analysts' 12-month price target for MPT reflects an upside potential of nearly 40%. I'm not that bullish about the stock, but I don't need to be. If MPT delivers even modest gains and continues paying its dividend at the current level, its total return could easily trounce the overall market going forward.

Sell a stock with such prospects? I don't think so.