The inventory market has been hovering over the previous yr, however sadly that does not imply all shares have been winners. Some are down huge as elevated rates of interest have made it tough for corporations to maintain their prices down. And even once-promising and seemingly secure dividend shares have needed to cut back their payouts.
Medical Properties Belief (NYSE: MPW) slashed its payouts final yr. And for an actual property funding belief (REIT), the place the dividend is a key cause buyers purchase shares of the corporate, a sell-off usually follows. Not solely has Medical Properties’ inventory fallen to new 52-week lows, however the healthcare-focused REIT can be at such a beaten-down valuation that it hasn’t traded at these ranges since 2009.
Has Medical Properties Belief develop into so low-cost that it’s a no-brainer purchase at this level?
The corporate nonetheless is not out of the woods
Getting into 2024, it regarded as if the REIT is likely to be on a extra optimistic trajectory, with the hope {that a} decline in rates of interest this yr may assist cut back prices and make it a extra enticing funding.
However Medical Properties has confronted points with tenants not having the ability to pay their full lease, and that is an issue that continues to be at present. On Jan. 4, the REIT stated it was working with one in all its prime tenants, Steward Well being Care System, to assist strengthen its liquidity and “restore its stability sheet.” This concerned offering the corporate with a $60 million bridge mortgage.
Unsurprisingly, the information wasn’t met positively, as shares of Medical Properties would tank following the information. And yr so far, the inventory is down greater than 26%.
An enormous check will come later this month when the corporate experiences its newest quarterly numbers. Buyers ought to circle Feb. 21 on their calendars. That is when administration has scheduled its earnings name, and that might result in one other risky day for the healthcare REIT.
Does the low worth offset the danger?
By now, buyers are doubtless properly conscious of the danger that comes with Medical Properties’ inventory. Its shares have not been this low-cost since 2009, and for good cause. Buyers do not have a number of confidence within the REIT’s tenants. At lower than 7 occasions its estimated future earnings, the inventory would look like low-cost. And in response to the consensus worth goal of $8, Wall Avenue analysts consider the inventory may greater than double in worth.
However the issue is that the corporate’s scenario is consistently evolving. Analysts replace their expectations for a inventory primarily based on new developments, which implies these earnings expectations and worth targets can — and sure will — change sooner or later. If this was simply the case of a REIT being down on account of excessive rates of interest, it may very well be a slam-dunk purchase. However that is not the case, and its issues go deeper than that.
The uncertainty with one in all its prime tenants is what makes it tough for buyers to find out what a great worth for the enterprise is. If the scenario deteriorates, earnings may worsen. In its most up-to-date quarter, for the interval ended Sept. 30, 2023, the corporate reported funds from operations of $216.4 million, which was down 14% yr over yr.
Final yr, the REIT diminished its quarterly dividend from $0.29 to $0.15. However on the inventory’s diminished worth, the yield stays excessive at over 16%. It is pure to fret about that top a payout and whether or not it is nonetheless sustainable. Buyers won’t get solutions even after the newest earnings numbers.
Because of this, it is tough to say that even on the diminished worth, the inventory’s valuation is low sufficient that it offsets the danger. One other dividend lower, or information that the scenario with Steward hasn’t improved, may end result within the inventory going into one other tailspin.
Must you take an opportunity on Medical Properties Belief?
The prudent factor for buyers to do can be to attend for at the very least two earnings experiences, and presumably three, earlier than making a call on the inventory. Even when the outcomes for the present quarter counsel that the REIT is in higher form, that may not be sufficient to show that the inventory is a viable funding.
The scenario involving Steward does not seem to have a fast repair, and since it is a non-public firm, buyers can solely gauge the scenario primarily based on data that Medical Properties gives. Merely saying that issues are higher won’t be adequate proof. The proof shall be a number of quarters of constant earnings numbers from the REIT and dividend funds. Something lower than that, and buyers may very well be taking over a giant threat with this dividend inventory.
For these craving high-yielding shares, there are higher and safer choices to contemplate than Medical Properties Belief.
Must you make investments $1,000 in Medical Properties Belief proper now?
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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 coverage.
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