Medical Properties Trust (MPW 8.21%) has been a hot topic of conversation among income-focused investors in 2023. Unfortunately, I suspect that some overeager traders might end up getting less yield than they expected while holding shares of a medical real estate investment trust (REIT) with less than ideal financials.
Specializing in hospital facilities certainly hasn't spared Medical Properties Trust from the toll taken by higher-for-longer interest rate policy. A quick glance at the chart reveals that Medical Properties Trust stockholders have suffered from share-price erosion in 2023, not unlike the deterioration witnessed in non-medical REIT stocks such as Realty Income Corp. and Simon Property Group.
NYSE: MPW
Key Data Points
When share prices decline, juicy dividend payments can serve as a consolation prize for despondent investors. Yet, in the case of Medical Properties Trust, an executive's seemingly offhand comment may indicate an openness to further yield rug pulls down the road.
The first cut is the deepest
For roughly a decade, Medical Properties Trust has been a consistent (if not fast) dividend grower. From 2013 to mid-2023, the company added a penny to the quarterly dividend distributions once a year.
That track record came to a screeching halt in August, when Medical Properties Trust announced it was slashing its quarterly dividend payments by nearly 50%, from $0.29 to $0.15. Most likely, it wasn't mere happenstance that Medical Properties Trust stock sank over the following weeks; one could almost hear passive-income investors running for the exits.
Thus, dividend investors wondered whether they could trust Medical Properties Trust. Sure, an argument could be made that the severe yield cut should help Medical Properties Trust shore up its financials. In such a challenging environment for REITs, however, Medical Properties Trust has a lot of shoring up to do.
The company has a quarterly financial report due soon, but for the time being, it's worthwhile to take a quick look at Medical Properties Trust's second-quarter performance. On a year-over-year basis, interest expenses increased appreciably, while the company's real estate depreciation and amortization expenses swelled by hundreds of percentage points. Additionally, Medical Properties Trust flipped from net income in the year-earlier quarter to a net loss in Q2 2023.
Don't chase this yield
Fast-forward to October, and Medical Properties Trust's quarterly dividend distributions are still $0.15. But the annual yield, percentage-wise, now approaches 20%. This is a by-product of the sharp decline in the share price.
Now, it's a question of whether Medical Properties Trust can afford to pay its current dividend distributions for the long term. The company's upcoming quarterly financial report will hopefully provide confidence, or at least some clarity, for uneasy shareholders.
That remains to be seen. For the time being, however, prospective investors can ponder a statement uttered (not once, but twice) during Medical Properties Trust's most recent quarterly conference call. Raymond James analyst Jonathan Hughes very politely and indirectly inquired about the "sustainability" of Medical Properties Trust's dividend. The company's CFO, Steven Hamner, acknowledged that "everything is on the table."
Indeed, everything was on the table, as Medical Properties Trust practically halved its dividend payouts not long afterwards. So, was this a onetime stopgap measure, or a long-term shift in the board's position and attitude?
What the current shareholders should demand is a definitive statement on this matter, which Medical Properties Trust's management has a prime opportunity to provide during its next, late-October earnings call. Until then, it would be incautious to chase this yield, effectively leaping without looking. Medical Properties Trust must show, not just tell, possible investors that its ostensibly hefty yield is reasonably safe.
