Does a rising tide really lift all boats? Not necessarily. If boats are too leaky, they can still sink no matter how much the water level rises.
The S&P 500 has been in a strong bull market since October 2022. But not every stock has delivered solid gains. Here are two ultra-high-yield dividend stocks down more than 50% over the last year.
High yields, low valuations
You won't find many healthcare stocks with higher dividend yields than Medical Properties Trust (MPW +1.39%). The hospital-focused real estate investment trust (REIT) offers a dividend yield of nearly 12.3%. Meanwhile, pharmacy giant Walgreens Boots Alliance's (WBA +0.00%) dividend yields almost 8.9%.
NYSE: MPW
Key Data Points
Neither company has such a high yield because it has boosted its dividend tremendously. Medical Properties Trust slashed its dividend in 2023. Walgreens cut its dividend nearly in half earlier this year.
Instead, those ultra-high yields stem from huge sell-offs. Medical Properties Trust's share price has fallen a little over 50% since a year ago. Walgreens stock has plunged more than 60% over the last 12 months.
NASDAQ: WBA
Key Data Points
In addition to pushing their dividend yields higher, the steep declines for Medical Properties Trust and Walgreens have given both stocks exceptionally low valuations. Medical Properties Trust's shares now trade at a forward price-to-earnings ratio of under 6.7. Walgreens' forward earnings multiple is below 5.2.
Behind the declines
Rising interest rates contributed to Medical Properties Trust's decline. However, the biggest issue by far for the healthcare REIT is the precarious financial conditions of some of its top tenants.
Steward Health Care ranks as Medical Properties Trust's largest tenant, accounting for 18.6% of the REIT's assets as of March 31, 2024. Steward filed for Chapter 11 bankruptcy in May 2024.
Medical Properties Trust's problems don't end with Steward, though. Prospect Medical Holdings is another tenant facing significant financial challenges. The hospital chain disclosed a few weeks ago that it's under investigation by the U.S. Department of Justice. Prospect made up 6.3% of Medical Properties Trusts' assets at the end of the first quarter.
Walgreens' share price has fallen primarily due to a highly challenging operating environment. High inflation has caused consumers to tighten their purse strings. Walgreens has tried to run promotions and lower prices. While these efforts have helped drive more traffic, they've eaten into the company's profits.
In addition, some generic drug launches have negatively impacted Walgreens' pharmacy margins. At the same time, there has been lower overall market growth in the pharmacy industry while competition has increased.
Are these ultra-high-yield dividend stocks dirt cheap buys now?
Those ultra-high dividend yields offered by Medical Properties Trust and Walgreens Boots Alliance may be very tempting to income investors. The dirt cheap valuations could be enticing to value investors. However, it's important to understand the risks that both companies face.
The financial problems for Steward and, to a lesser extent, Prospect, are likely to weigh on Medical Properties Trust for a while to come. Walgreens doesn't anticipate marked improvement with its operating environment this year.
That said, Medical Properties Trust CEO Ed Aldag said in the company's Q1 earnings call he believes that Steward's bankruptcy process "will facilitate the retenanting or sale of Steward hospitals in an orderly and timely fashion." He added that the REIT is "pleased with the progress we are making with parties interested in the Steward hospitals."
If this process goes quickly, the dark cloud hovering over Medical Properties Trust will diminish significantly. A potential interest rate cut by the Federal Reserve later this year could also provide a catalyst for the stock.
Walgreens plans to close underperforming stores over the next three years. It's reducing the number of brand partners and focusing more heavily on its own brands and preferred partners in the health and wellness categories. The company is also taking steps to hire top pharmacy school graduates.
I wouldn't go as far as saying that either Medical Properties Trust or Walgreens are good picks to buy right now. There's simply too much uncertainty. However, it's possible that either or both stocks could deliver exceptional total returns over the next decade if their turnaround plans are successful.
