Investing in dividend shares is not all the time as simple because it seems. Whereas it might be tempting to consider how a lot dividend earnings you may gather from a excessive yield, it is also necessary to contemplate the chance. Even seemingly protected shares can wrestle below difficult financial circumstances.
Medical Properties Belief (NYSE: MPW) has endured greater than its share of struggles over the previous few years. Tenants of the hospital-focused actual property funding belief (REIT) have confronted challenges as a result of pandemic, and that has affected the REIT’s financials as effectively.
Final yr, Medical Properties Belief (MPT) slashed its quarterly dividend from $0.29 to $0.15. However with its struggles nonetheless not showing to be over, may or not it’s potential that buyers endure yet one more fee minimize in 2024?
Did the corporate simply situation a warning shot to buyers?
It has solely been a few weeks into the brand new yr, however shares of MPT are already nosediving. Down 30% to start out January, the REIT spooked buyers when it issued an replace on Jan. 4 about one among its troubled tenants, Steward Well being. Whereas MPT tried to calm buyers in regards to the tenant, saying that it might give Steward Well being a bridge mortgage and work on recovering uncollected lease, the replace solely despatched buyers into panic mode.
Whereas MPT has tried to exhibit to buyers that its non-Steward portfolio is attaining “sturdy income,” it is a concern to even body any diversification or stability in such a approach, suggesting that buyers ought to look previous the important thing tenant. Many buyers may even see the latest replace as a warning that one other dividend minimize could also be on the desk, given the publicity that the REIT has to Steward.
Of MPT’s $19 billion in complete belongings, slightly below 20% is expounded to Steward (as of its most up-to-date quarter, ended on Sept. 30, 2023). The subsequent-largest operator accounts for almost 11% of MPT’s complete belongings.
The dividend might not seem as protected because it did final quarter
Many REIT buyers concentrate on funds from operations, or FFO. This metric is commonly used rather than web earnings to judge the protection of a dividend as a REIT excludes one-time positive aspects and losses, in addition to depreciation and amortization bills that do not impression money.
In MPT’s most up-to-date quarter, it reported FFO per share of $0.36. That was down from $0.42 within the prior-year interval, however it’s effectively in extra of the $0.15 that it pays its shareholders each quarter, which may recommend that the present dividend is manageable.
Traders, nevertheless, should not take an excessive amount of consolation in these outcomes. The latest replace might imply that the scenario involving Steward has worsened, and that future outcomes might not be as robust. MPT has additionally said lately that it will likely be evaluating potential divestiture alternatives as a approach to enhance its financials and general liquidity. The REIT has been promoting belongings, and extra divestitures mixed with Steward’s struggles may lead to a a lot leaner backside line.
Traders should not take an opportunity on the dividend
Due to the inventory’s early struggles in 2024, MPT’s yield is now as much as 17%. Though it may appear unlikely for the REIT to chop its dividend once more this yr, buyers should not assume that simply because MPT lowered the payout final yr, one other minimize is not potential once more. However it might be too early to say how possible of a state of affairs that’s simply but.
Income investors will not know the way unhealthy the scenario is till the corporate’s subsequent earnings report, which is more likely to come out subsequent month. Till then, the best choice could also be to easily keep away from MPT given the chance and volatility surrounding the REIT and its dividend.
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David Jagielski has no place in any of the shares talked about. The Motley Idiot has no place in any of the shares talked about. The Motley Idiot has a disclosure policy.
Is This 18%-Yielding Dividend on the Verge of Getting Cut? was initially printed by The Motley Idiot
