1 ultra high yield medical stock to buy Hand Over Fist and 1 to avoid

Companies with high dividend yields may look attractive, but income stocks are much more than above-average yields. Any corporation’s payouts are at risk without a solid business to back it up. That’s why choosing the right dividend stocks requires looking beyond the yield and analyzing the company’s fundamentals.

Let’s illustrate this with two examples: Pfizer (PFE -0.76%)and Medical Property Trust (MPW -1.26%). While both have attractive returns, the former is a worthy investment, but the latter, not so much. Here’s why.

High Yield Stocks to Buy: Pfizer

The drugmaker’s stock is not popular in the market right now, with the stock significantly lagging the market over the past two years. Meanwhile, the stock’s dividend yield has risen, and at the time of writing, it stands at 5.7%. Despite Pfizer’s problems, the company can maintain its dividend schedule.

To be fair, Pfizer’s financial results pale in comparison to what it delivered in 2021 and 2022 — two years in which its sales skyrocketed thanks to its coronavirus work. However, its top line has edged well above pre-pandemic levels, a very encouraging sign that points to secular growth in the business.

PFE Revenue (TTM) data by YCharts.

Pfizer’s COVID-19 drugs will stop affecting their results as much. In addition, the company’s research and development expenses (which are much higher than pre-pandemic levels) have not decreased, which has seen operating and net income fall below pre-COVID levels.

And so there’s a strong possibility that a lot of products are in development, which should help the company return to profitable growth. Pfizer’s pipeline currently has over 100 programs. But two areas where the company is focusing its research efforts and deserve special mention are in the weight loss and oncology space.

PFE data on research and development expenditure (TTM) by YCharts.

The lucrative field of GLP-1 weight loss is growing rapidly. Pfizer’s candidate, oral danugliprone, recently performed well in a phase 2 trial.

Then there are the company’s efforts in oncology. Pfizer acquired Seagen, an oncology specialist, for $43 billion. CEO Albert Bourla said of the acquisition: “We are not buying the golden eggs. We buy the goose that lays the golden eggs”. Seagen had several approved cancer drugs and a deep pipeline, but it was a much smaller company than Pfizer, with less funding and a smaller industry footprint. Now that they are a single entity, Pfizer should become a much more prominent player in oncology.

So, despite weaker results over the past year or so, the company’s core businesses boast excellent prospects. Pfizer’s dividend should be safe. It has increased its payouts by 17% over the past five years. Pfizer is a reliable, high-yielding dividend stock to buy and own.

The high-yield stock to avoid: Medical Properties Trust

Medical Properties Trust (MPT), a real estate investment trust (REIT) focused on healthcare, has been battered and bumped since the start of 2023. The company’s revenue, earnings and share price have all moved in the wrong direction.

Unlike Pfizer, this is not because MPT was falling from incredible heights. Here is the reason. Steward Healthcare, one of its major tenants, has had trouble keeping up with rent payments. Steward officially filed for bankruptcy in May.

As a result of this problem, MPT had no choice but to cut its dividend. It has done so twice since mid-2023. MPT’s yield remains impressive at 5.56%. However, dividend seekers hate payout cuts, so MPT may not be the best option right now.

MPW data by YCharts.

Some will object that the company seems on the verge of putting its Steward problems in the rearview mirror. True enough. MPT recently reached agreements to put new tenants in 15 of the 23 hospitals formerly operated by Steward Healthcare. The average lease term is approximately 18 years.

But under the deal, those new tenants won’t start paying rent until the first quarter of 2025, and even then, they’ll only pay half of the contract until the end of next year. They will gradually accelerate things until they reach the full amount in the fourth quarter of 2026.

This is a win for MPT: it gets rid of the troubled tenant and replaces it with four new ones (more diversification), which (unless financial problems also arise with them) will pay regular and predictable amounts until at least 2042, on average. However, MPT still has work to do to fix its business. It has yet to find solutions for some of Steward’s former facilities, including some hospitals under construction.

Even if it were, given the problems it has faced lately, I would recommend staying away from the stock, at least for now. Yes, MPT is improving its business, but it’s best to watch things from the sidelines until it can prove it’s officially back by delivering consistently good results.