News

Medical Properties Trust (NYSE: MPW) has been a polarizing stock to own and watch in recent years. It has an incredibly high-dividend yield of 16%, which can be enticing to investors seeking a high payout. But the healthcare-focused real estate investment trust (REIT) has also slashed its dividend payments recently as it has faced problems with tenants paying their rent on time.

The REIT has been resorting to selling off assets in an effort to boost its liquidity and improve its financials. Doing so can give the business some much-needed breathing room and potentially alleviate some of the fears relating to owning the stock. And investors recently got some good news on that front.

Asset sales have been going better than expected

On April 12, Medical Properties Trust (MPT) announced that it sold a majority position in five Utah hospitals. The transaction will generate cash proceeds of around $1.1 billion for the REIT. The company plans to use the cash to help pay down debt as well as for general corporate purposes.

Previously, MPT was planning to raise $2 billion through these types of liquidity transactions. But given its recent transactions and the progress it has been making and the state of ongoing negotiations, it is confident that it will exceed its $2 billion target for the year.

That's a positive development for the business, which suggests that MPT's strategy is unfolding well. While that doesn't eliminate all the risk facing the business, adding more liquidity than expected can be the difference between maintaining the current dividend and having to reduce it again. At $0.15, the quarterly dividend MPT is paying right now is nearly half the size it was a year ago ($0.29).

Medical Properties Trust still faces risk

For MPT, investors need to closely watch the stock, as it has proven to be a volatile investment. In the past 12 months, the healthcare stock has lost half of its value as investors have grown concerned about the viability of the business, especially with interest rates remaining high.

Last year, write-offs and impairment charges crippled its earnings, with the REIT incurring a net loss of $556.1 million. REITs normally are safe bets to post profits, and it's usually a question of how much they will generate in earnings; losses are by no means the norm. MPT's normalized funds from operations (FFO) per share were $1.59 for the year when excluding write-offs and unbilled rent, but even that was still 13% less than the $1.82 normalized per-share FFO it reported in the previous year. The good news, however, is that $1.59 is high enough to support its dividend, which at an annualized rate would total just $0.60 per share.

The company finished the year with a little under $10.1 billion in debt, which wasn't a big improvement from the near $10.3 billion it reported a year earlier. But with interest rates not coming down, there's increasing pressure on MPT to reduce some of that risk and exposure, especially as it has faced problems with tenants, including Steward Health.

MPT is scheduled to release its latest results on May 9, at which point investors will get an updated picture of how the business is doing and just how safe its dividend looks.

Should you buy Medical Properties Trust stock?

MPT isn't a stock I'd suggest typical dividend investors load up on. Until there's a clear indication that its problems with struggling tenants are long past and that the dividend may be sustainable for the foreseeable future, investors may still be better off holding off on investing in the stock. While its FFO looks good right now, as the company trims its portfolio, its earnings will inevitably look different.

If you're a contrarian investor, however, with a high-risk tolerance, there's the potential for this to be an appealing investment. Interest rates could come down this year, which should make REITs more attractive investments. MPT's asset sales are going well, and that's a positive development which suggests the business is effectively executing its turnaround strategy. As a potential turnaround play, MPT can make for an intriguing buy given its low valuation -- it trades at less than 0.4 times its book value. There could be some significant upside for the stock if MPT's turnaround is successful, but this is not your typical dividend stock, nor is MPT suitable for risk-averse investors.

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

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.