Dear stockbrokers, dear stockbrokers,
when a stock has a dividend yield in the double digits or above, it’s usually for a good reason. That means the stock and the dividend are pretty risky.
Medical Properties is a
The stock has been hit hard by this year’s decline, which is one reason for the high yield.
In April, a short seller published his bearish thesis that the company’s business was slowing and the stock was overvalued. This caused the share price to drop drastically.
While the price has recovered somewhat after hitting a low below $10 in October, it is still down 50% from where it started the year.
While the short sellers were right about the direction of the stock price, they were wrong about the deterioration in the company’s business.
Funds from Operations (FFO) reflect results from ordinary activities and are the measure of cash flow that we use for REIT’s. Compared to last year, FFO is expected to increase this year, from $976 million to $1.08 billion. FFO is expected to be the same for next year.
This year, Medical Properties Trust is expected to pay out $694 million in dividends, which translates to a payout ratio of 64%.
For the next year, Wall Street expects the payout ratio to increase to 66% on an expected $713 million in dividend payments.
The stock may have suffered a loss this year, but the dividend is easily covered by FFO. The company also boasts a strong 10-year track record of consistently raising dividends, which again suggests management takes dividend payments very seriously.
So despite the current sky-high yield, Medical Properties Trust’s dividend is safe.
Dividend Security Rating: A