You've probably thought about whether that 13%-yielding stock could be a steal of a deal. All that dividend income could be significant. And so what if you lose money on the stock -- the dividend income could help make up for it. Plus, if things turn out well, the stock could even rise in value, giving you some great returns along with all that dividend income.
That's undoubtedly a big allure when it comes to Medical Properties Trust (MPW +2.53%). The stock pays an extremely high yield of around 13%, and it can easily generate $1,000 or more in dividend income for your portfolio. That is, if it can continue paying its dividend. There's no certainty that it can.
While the stock looks cheap and may seem like it possesses a lot of upside, it also faces significant risk. It's selling assets to boost liquidity, and one of its key tenants recently filed for bankruptcy protection. Forget gains along with dividend income -- you could end up with losses and a dividend suspension instead.
The risk is extremely high with Medical Properties Trust, and it's not one most investors should consider taking. If you want a stock with a lot of upside and a high yield, I've got a better option for you: Pfizer (PFE +0.65%).
NYSE: PFE
Key Data Points
Pfizer's near-6% yield is well above average
You won't get a double-digit yield with Pfizer's stock, but you can still get a fairly high-yielding dividend. It currently pays around 5.8%, which is four times higher than the S&P 500 average of 1.3%. As a bonus, the stock has also increased its dividend payments in recent years. The stock's quarterly dividend of $0.42 is 17% higher than the $0.36 it was paying investors five years ago.
Some investors are worried about Pfizer's dividend, too. After all, the company is facing some significant headwinds. Some of its drugs are losing patent protection, and Pfizer is also seeing big declines in revenue from its COVID vaccine and pill.
But on the company's most recent earnings call in May, management made it abundantly clear that the dividend is a high priority for the business. CFO Dave Denton said that "our No. 1 priority from a capital allocation perspective is both supporting and growing our dividend over time, and that is not at risk." CEO Albert Bourla even referred to the dividend as a "sacred cow."
Those are more than just vague and bland statements from management. They look like a firm commitment that the dividend is not only stable, but also likely to increase in the future.
The stock is also cheap and possesses a lot of upside
If you're also craving a stock with a lot of potential upside, then Pfizer makes for a better, more calculated risk than Medical Properties Trust. With Pfizer, you don't have to worry about tenants paying their bills. Instead, you just need to hope that a healthcare company with a rich history that spans more than 100 years and which developed a top-selling COVID vaccine and pill hasn't suddenly stopped learning how to innovate and bring new products to market.
Pfizer has been investing heavily in acquisitions in recent years, most notably its $43 billion purchase of cancer company Seagen. Although Pfizer admits its top line may lose up to $18 million due to generics and rising competition in the years ahead, it also has a plan to add $25 billion by 2030. That's due to its acquisition of Seagen and other companies, along with in-house drug development.
It's a lofty goal, but investors don't appear convinced -- hence the stock's 15% decline over the past 12 months. At just 13 times its estimated future earnings, Pfizer's stock is heavily discounted and could provide investors with some terrific upside in the long run, assuming that its growth strategy pays off.
Pfizer is a better option for both dividend and growth investors
While Medical Properties Trust may seem like an attractive high-risk, high-reward stock, I think it's too heavily skewed to the risk side of that equation to be a tenable option for most investors. Instead, Pfizer is a better stock to buy. There's risk there as well, but the healthcare giant has a better track record and makes for a better, more calculated risk than the real estate investment trust. With a high-yielding dividend, it can also make for an excellent income stock to buy and hold.
