Why a Dividend Cut for Medical Properties Trust Could Be Good News for Investors
A dividend cut isn't something income investors want to see. A reduction in a payout can be a big blow to their portfolios, but sometimes it's necessary. Last week, Medical Properties Trust (NYSE: MPW) announced it would be slashing its payouts by nearly 50%. It's a move the real estate investment trust (REIT) likely needed to make, however. And by doing so, it could win back some investors. Here's why the dividend cut may end up helping this beaten-down stock.
Medical Properties Trust is an income stock whose portfolio focuses on hospitals. Hospitals, unfortunately, have been struggling since the start of the pandemic and that has put the REIT into a tough situation. And on Aug. 21, it announced it would be reducing its quarterly dividend from $0.29 per share to $0.15. Yet despite such a massive decrease in its quarterly payout, shares of the company didn't nosedive. In fact, the stock finished the week at $7.01 -- higher than the $6.93 it was at a week earlier.
The dividend cut didn't lead to a massive sell-off in the share price, which is a sign that the move didn't surprise the market. With a former dividend yield approaching 17%, many investors may have been wary of the extremely high payout to begin with. Once a yield is up over 5%, investors start to question whether it's sustainable. At more than 10%, a dividend cut often appears inevitable.
Source Fool.com
