Is Medical Properties Trust's 13% Dividend Yield Safe?
Medical Properties Trust (NYSE: MPW) is a real estate investment trust (REIT) that pays a dividend that, at its current share price, yields close to 13%. That high payout could be incredibly attractive to investors. But the danger with such yields is that they are usually high for a reason, and are typically a sign that investors lack trust in the company's ability to maintain the payouts. Is Medical Properties's dividend too good to be true, or are investors overlooking a potential steal of a deal?
A big risk with Medical Properties Trust relates to its tenants (which are predominantly hospitals) and their ability to pay rent. The pandemic created many problems for hospitals, disrupting their normal operations and causing a surge in staffing costs. And at least one of the REIT's tenants, Prospect Medical, has struggled to pay its full rent in the wake of the crisis. As a result, investors have been uneasy about the prospects for the REIT's dividends.
For the third quarter, Medical Properties reported normalized funds from operations (FFO) of $0.38 per share, which was down from $0.45 per share in the prior-year period. FFO is a key metric for REITs, and it is viewed by the industry as a better gauge of profitability than net income, which can include non-cash costs such as depreciation. FFO is also a better indicator of a REIT's ability to pay dividends. And while Medical Properties's FFO declined on a year-over-year basis, it was still more than double the REIT's quarterly dividend payment of $0.15 per share.
Source Fool.com
