If a dividend-paying stock has cut its payout, investors might be tempted to think that it won't do so again for a while. After all, the company would want to avoid making such a negative announcement once, let alone twice.
And if you have to cut your dividend several times in a short period, that may be a sign that you don't have a good idea of how strong your financial results will be in the future.
That's what happened recently with Medical Estate Trust (NYSE: MPW)The real estate investment trust (REIT) announced it would cut its dividend once again. The stock still pays investors a high dividend, but can they trust the payout and that it will be secure?
Medical Properties' dividend has dropped 72% in about a year
It was August 2023 when Medical Properties Trust announced it would cut its quarterly dividend from $0.29 to $0.15 in light of issues with its tenants, including a particularly problematic one at Steward Health. which recently declared bankruptcy.
But now, in 2024, the REIT has again cut its quarterly dividend to just $0.08. The company's annual dividend rate of $0.32 is now just a few cents higher than what it was paying its investors a few years ago. Every quarter.
However, the new dividend means that investors are still getting a fairly high yield. Based on the stock's closing price of $6.37 last week, the yield is just over 5%, which is still much higher than the S&P 500 Index average of 1.3%.
In the past, REIT yields have been above 10%, which is typically a sign of trouble; if it were safe, investors would be aggressively buying a stock. dividend stocks with such a high payment.
Does lower yield make stocks a safer buy?
Medical Properties Trust continues to pay a relatively high dividend, but the biggest risk is not knowing what lies ahead for the company. The REIT has been selling assets to improve liquidity and is transferring Steward Health properties to new operators, which should provide a bit more stability.
But until investors know exactly how much funds from operations (FFO) the REIT will consistently generate, it will be difficult to know whether the current dividend is safe and sustainable or whether it could still be too high.
While it may seem unlikely to expect a third As for the payout, investors should prepare for anything at this point, given the volatility the business has had in recent years. For the first six months of 2024, the company reported an FFO loss of $869.5 million versus a profit of $525.9 million during the same period last year.
Should you take the risk of buying Medical Properties Trust shares?
The REIT's stock has risen about 30% in the past month alone following the news that the company is divesting itself of Steward Health, even despite the seemingly bad news of another dividend cut. Clearly, there is some optimism that the company may finally be on a positive path. And while that may be true, my concern is that it's still no guarantee of how the business will perform and how secure the new tenants will prove to be.
And with so many other dividend-paying stocks offering comparable returns without as much risk, I don't see a compelling reason to even bother investing in Medical Properties Trust right now, given the uncertainty out there. I would put the stock on a watch list and keep an eye on its performance over the next few quarters to see if it can generate positive FFO again, but until it does, I wouldn't seriously consider buying shares of the REIT.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a Disclosure Policy.
This High-Yield Dividend Stock Just Cut Its Payout for the Second Time in a Year Originally published by The Motley Fool
