Dividend stocks offering investors high yields tend to be alluring because the income they generate for shareholders is better than average. However high yields often come with high risks. If a dividend proves to be unsustainable and a company slashes the payout, investors could be left holding a stock that suddenly doesn’t look all that great.
Medical Properties Trust (NYSE: MPW) pays investors a fairly high yield of 13% right now. That’s well above the S&P 500 average of just 1.4%. However, given the changes the company is undergoing right now, that dividend might not be the safest option for income investors.
Still, there are other potentially more enticing reasons to buy shares, provided you’re OK with the elevated risk.
Medical Properties Trust’s valuation is dirt cheap right now
Medical Properties Trust is a real estate investment trust (REIT) that focuses on hospitals. Ever since the start of the pandemic, it has been plagued with tenants struggling to pay rent, including Steward Health Care. The issue was concerning enough that at the start of the year, the REIT announced a plan to help Steward improve its liquidity and strengthen its balance sheet.
Because of these concerns, Medical Properties Trust hasn’t been a safe investment in recent years. That risk is evident in the stock’s price decline. Since 2021, the REIT’s valuation has plummeted close to 80%. Currently, the stock is trading at just 0.4 times its book value and a price-to-earnings multiple of less than 7. That big discount is what could make this a potentially attractive contrarian investment.
If Medical Properties Trust can turn things around, it could have tremendous upside
Medical Properties Trust is coming off a brutal 2023 during which it incurred a net loss of $556 million as a result of some hefty write-downs and impairment charges. That’s not something you expect to see from a REIT, which is normally a fairly safe investment since its main job is to collect rent from tenants.
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If there aren’t any further impairment charges coming this year and the company is successful in…
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