Medical Properties Trust (MPT +3.51%) pushed too hard on the accelerator and then found itself in a bind. The only solution was for the real estate investment trust (REIT) to sell assets and cut its dividend. The problem was so bad, however, that the dividend had to be cut twice. That's why the shares are still trading 75% below their 2020 peak. Should you dump the stock?
The worst is behind Medical Properties Trust
Medical Properties Trust found itself in the same jam that many companies do: It took on leverage to fund growth. In this case, the company bought healthcare-related properties, such as hospitals. That's generally considered a reliable asset class given the necessity of the services involved, but not all tenants are created equally.
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When Medical Properties Trust faced important tenants having trouble paying rent, it didn't have the financial leeway to absorb the hit. That's one of the risks that comes along with a high debt load: When times get tough, leverage can work against you.
That said, the heavy lifting has been done. The healthcare REIT has cut its dividend and sold assets. It has dramatically improved its business foundation, and the proof of that is in the recent dividend hike of 12.5%.
Don't get too excited about that number; it was just a penny-per-share-per-quarter increase. But the symbolism of the move is what matters. The company appears to be telling investors that the worst is behind it.
Hold on or cut your losses?
With the future looking brighter than the recent past, dividend investors might want to stick around for the recovery. That will likely play out over years, and there's a lot of ground to be made up, given the huge 75% stock decline. But over time, you could be made whole again as the REIT returns to growth -- just don't expect a quick rebound.
NYSE: MPT
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That said, if you are sitting on large paper losses, you might be better off harvesting those losses to offset gains elsewhere in your portfolio. That may require admitting you made a mistake, which is hard to do.
However, it can reduce your tax bill, and it can free up capital that you can put to use in stocks that have better dividend track records. In the healthcare REIT space, high-yield Omega Healthcare Investors (OHI +0.92%) could be a strong alternative for you to consider.
