Buy low, sell high. Every investor has heard this maxim for making money. The challenge is knowing when a stock selling at a low price is poised to move higher or continue its decline.
Take Medical Properties Trust (MPW 0.25%) (MPT). Its shares have plunged more than 55% so far in 2023. However, the healthcare real estate investment trust (REIT) reported pretty good third-quarter results last week which caused the stock to rebound somewhat. Should you buy this 12%-yielding dividend stock hand over fist right now?
Positive signs for MPT
In MPT's press release announcing the company's Q3 results, CEO Ed Aldag stated, "Our business model remains strong and stable." Strength and stability are exactly what shareholders desperately want from the company. MPT's Q3 results arguably give them at least some reasons for cautious optimism.
The healthcare REIT reported net income of $0.19 per share, which met analysts' expectations. MPT also generated normalized funds from operations (NFFO) of $0.38 per share.
There's been considerable uncertainty about one of the company's major tenants, Prospect. Rosa Hooper, MPT's senior vice president of operations, said in the Q3 call that Prospect resumed paying rent for its California properties in September and October. The hospital operator should begin paying full rent in March.
MPT owns an interest in Prospect's managed care company, PHP Holdings. Prospect will soon put this business up for sale. MPT CFO Steven Hamner stated that a transaction is expected next year, with MPT receiving part of the proceeds.
Investors were perhaps most excited about MPT's moves to reduce its debt. The company has already announced several divestitures. It also plans to raise around $2 billion in liquidity over the next 12 months through further asset sales, joint ventures, and limited secured debt financing.
Lingering questions
Despite these encouraging signs, MPT still faces several lingering questions. A big one relates to the REIT's largest tenant, Steward. As of June 30, 2023, Steward made up 19% of MPT's total assets.
Steward has experienced significant financial challenges. Hamner acknowledged in MPT's Q3 call that the hospital operator continues to face "near-term cash flow headwinds." In particular, Steward is trying to work through issues related to its revenue cycle management and an accounts payable backlog.
But Hamner said, "Given Steward's strong facility-level operations, we remain confident in the real estate platform's long-term profit potential." He noted that Steward's facilities in Massachusetts and South Florida comprise roughly two-thirds of its leased properties and "are critical to the healthcare of the surrounding communities."
Another major concern is that MPT's asset sales are diluting its adjusted funds from operations (AFFO). Some investors could be worried that this will put pressure on the REIT's dividend payout, which was recently slashed.
However, Aldag stated that the reduction of the dividend gives MPT "a near-term AFFO payout ratio below 60%." He added that the dividend is now at "a comfortable level to absorb the dilutive effects of additional near-term asset sales."
Buy MPT stock hand over fist?
There's another old investing adage that sums up the risks of buying a beaten-down stock: "Don't try to catch a falling knife." Should you buy MPT stock hand over fist -- or is it akin to the proverbial falling knife?
It's impossible to know for sure if the REIT's share price will move higher or lower over the near term. We don't know exactly when MPT will return to growth, either. Because of these uncertainties, risk-averse investors shouldn't buy this stock hand over fist. They're better off looking elsewhere.
On the other hand, I do think that there's a light at the end of the tunnel for MPT. The company's business model is more stable than its stock performance might indicate. I expect that MPT will be able to continue paying its dividend at current levels. With all of that in mind, aggressive investors (and especially those looking for high dividend yields) might want to initiate a position in the stock.