The Uncertainty Surrounding Medical Properties Trust's Dividend Sustainability Amid Steward Health Bankruptcy

Is Another Dividend Cut Coming for Medical Properties Trust?

Last year, Medical Properties reduced its quarterly per-share dividend from $0.29 to $0.15. When a dividend stock's yield is exceptionally high, there's usually some concerning cause behind the elevation. If a dividend was considered safe, investors would be buying up the high-yielding stock, pushing the share price up and the yield down. When that isn't happening, it can often be a sign that investors are not optimistic about the company's ability to continue paying such a high dividend.

The Steward Health bankruptcy creates a lot of uncertainty for the business

Investing in a healthcare-focused REIT may seem like a safe option for dividend seekers, but that hasn't been the case at all for Medical Properties Trust (MPT) investors. The company has been plagued with rent collection issues, especially with one of its largest tenants, Steward Health.

MPW Total Long Term Debt (Quarterly) data by YCharts

Is the dividend sustainable?

During the first three months of the year, MPT incurred a loss per share of $1.23 as a result of impairment charges, primarily due to Steward. When factoring those items out, the company's normalized funds from operations (FFO) were $0.24 per share, which is higher than its current quarterly dividend rate of $0.15. But that normalized FFO was also down from $0.37 in the prior-year period. MPT says the decline is mainly due to a drop in Steward-related revenue.

Should investors expect a dividend cut?

MPT's high debt load and near-term uncertainty suggest that a change to its dividend may be coming once again. But without knowing the outcome of the sale of Steward's hospitals and what the future will look like, it may be difficult for MPT to estimate what payout size is manageable. A cut may indeed be coming, but in the short term, I suspect a suspension in the dividend may make more sense in order to give MPT more time to reassess its financial position, while also freeing up some important resources.

Investors look to the REIT primarily for the dividend, but without much stability in recent years due to problems with tenants, people haven't been eager to buy the stock. In the past three years, MPT's shares have crashed by 76%. And until the issue with Steward is sorted out, investors are still likely better off taking a wait-and-see approach with this stock, because it remains a highly risky investment.