This high-yielding dividend stock just cut its payout for the second time in a year

If a dividend stock has cut its payout, investors may be tempted to believe it won’t cut it again for a while. After all, the company would want to avoid making such a negative announcement once, let alone twice.

And if it has to cut its dividend several times in a short period of time, that may be a sign that it doesn’t have a good understanding of how strong its financial results will be going forward.

This is what happened recently Medical Property Trust (NYSE: MPW). The real estate investment trust (REIT) has announced that it will cut its dividend again. The stock still pays investors a big dividend, but can they rely on the payout and trust that it will be safe?

Medical Properties’ dividend has fallen 72% in about a year

It was in August 2023 that Medical Properties Trust announced it would cut its quarterly dividend from $0.29 to $0.15 in light of problems with its tenants, including a particularly troubled one in Steward Health, which recently filed for bankruptcy protection of bankruptcy.

But now, in 2024, the REIT has cut its quarterly dividend again, 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 investors are still earning a pretty high return. Based on the stock’s closing price of $6.37 last week, the yield is just over 5%, which remains much higher than S&P 500 average of 1.3%.

In the past, the REIT yield was above 10%, which is normally a sign of trouble; if it were safe, investors would aggressively buy a dividend stock with such a high payout.

Does the lower yield make the stock a safer buy?

Medical Properties Trust still pays a relatively high dividend, but the biggest risk is not knowing what’s next for the company. The REIT sold assets to improve liquidity. And it’s transitioning properties from Steward Health and to new operators, which should give it a little more stability.

But until investors learn exactly how much funds from operations (FFO) the REIT will consistently generate, it will be hard to know whether the current dividend is safe and sustainable, or whether it might still be too high.

Although it might seem unlikely to expect one third down to pay, investors should brace themselves for anything at this point given how volatile the business has been in recent years. During the first six months of 2024, the company reported an FFO loss of $869.5 million, compared to a profit of $525.9 million in the same period last year.

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Should You Take a Chance on Medical Properties Trust Stock?

Shares of the REIT rose about 30% in the past month alone on news that the company would divest itself of Steward Health, even despite the seemingly bad news of yet another dividend cut. There is clearly some optimism that the company may finally be on a positive path. And while that might be true, my concern is that it’s still anything but a guarantee of how the business will perform and how secure the new tenants will prove to be.

And with so many other dividend stocks offering comparable returns without nearly as much risk, I just don’t see a compelling reason to bother with Medical Properties Trust right now given its uncertainty. I’d put the stock on a watch list and monitor how it does in the coming quarters to see if it can return to generating positive FFO, but until it does, I wouldn’t seriously consider buying shares of REIT.

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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.

This high-yielding dividend stock cut its payout for the second time in a year was originally published by The Motley Fool