Is this 13% yielding stock due for a dividend cut?

A split yield of over 10% may look attractive to investors looking for a high level of recurring income. And while a stock that pays that much can generate a lot of income for you, it may not be the safest option to put in your portfolio. High yielding stocks often come with inherent risks. If they were safe investments, investors would not hesitate to buy such high-yield payouts, which in turn would likely increase their share prices and reduce their yields. When a stock’s yield remains high, that usually means there’s ample reason to remain cautious about the investment.

A high yielding stock that doesn’t get much love these days is Medical Property Trust (NYSE: MPW)which pays investors nearly 13% in dividends. But the real estate investment trust (REIT) has been one of the riskier income stocks he’s held this year, and its shares are down about 5% this year. Could investors simply be bracing for another dividend cut?

Medical Properties Trust focused on increasing liquidity

The problem with Medical Properties Trust (MPT) is that the company sold assets to improve its cash flow position. This is not a great sign for dividend stocks. It effectively tells investors that it is not generating enough cash to maintain its day-to-day operations and pay its dividends.

Last week, the REIT announced the sale of 11 health care facilities in Colorado, which will bring in $86 million. The company will use this money “to reduce debt and for general corporate purposes.” And when the REIT announced its latest quarterly results on August 8, it led with the news that it had executed $2.5 billion in liquidity transactions so far in 2024. While that may be positive news for the business, underscoring the importance of increased liquidity it’s not It’s not what dividend investors want to see, as it highlights the perilous state of the company’s financial results.

Earlier this year, one of MPT’s key tenants, Steward Health, entered bankruptcy protection and announced it would try to sell all of its hospitals in an effort to pay down $9 billion in debt from its books. The issues and uncertainty surrounding Steward have weighed on MPT’s share price in recent years.

Medical Properties Trust’s financials have not been strong

MPT has suffered losses in recent quarters, and in the first six months of the year, its funds from operations (FFO) per share totaled a negative $1.45 compared to a year ago when it was a positive $0.88. Normalized FFO, which excludes the impact of impairment charges, totals $0.47 for the year to date. While this is positive, it is down significantly from $0.85 in the same period last year.

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The good news for investors is that the rate is higher than the $0.30 per share that MPT paid out in the first two quarters in dividends. This suggests that the dividend may be sustainable, at least for the immediate future. But the danger is that, with the company selling assets and the future of Steward Health remaining unclear, it may not offer investors much comfort.

Investors should not rely on this dividend

MPT dividends are not certain. While the recent FFO numbers may suggest there is some safety there, the REIT is going through a tumultuous time and as it sells more assets, its numbers could deteriorate further and a dividend cut could be in the books.

There are many better dividend stocks to own than MPT, and unless you have an extremely high risk tolerance, it’s best to avoid it because things can get worse before they get better for the stock.

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David Jagielski has no position in any of the listed stocks. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Is this 13% yielding stock due for a dividend cut? was originally published by The Motley Fool