This 9% Yield Is No Longer Safe

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This 9% Yield Is No Longer Safe

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

It's not often that Safety Net gets it wrong, especially when it comes to dividends it deems safe. Last year, we looked at Medical Properties Trust (NYSE: MPW).

At the time, the company had plenty of cash flow, a low enough payout ratio and a solid history of annual dividend raises - everything Safety Net looks for in a dividend stock.

Despite its then-high 9.7% yield, Safety Net gave Medical Properties Trust an "A" for dividend safety.

Today, it's a different story.

Medical Properties Trust, an Alabama-based real estate investment trust (REIT), is a landlord for hospitals and is the second-largest nongovernmental owner of hospitals in the world.

The REIT's yield is still over 9%, despite the stock having fallen roughly 40% since December 2022. Even though the company was still generating plenty of cash flow, Medical Properties Trust slashed the dividend, which is a cardinal sin when analyzing dividend safety.

The company lowered the most recent quarterly dividend to $0.15 from $0.29 as it reduced debt and dealt with lower funds from operations (FFO), the measure of cash flow we use for REITs.


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FFO isn't expected to be much lower this year, just a $7 million drop from $934 million to $927 million. While we never want to see FFO go down, Medical Properties Trust can still easily afford the expected $628 million in dividends this year. And the amount paid in dividends will be even lower than that next year, as the company paid a higher dividend in the first two quarters of this year.

Management said it wants the payout ratio to be less than 60%, which is a reasonable number.

So the main issues here are declining cash flow and the just-imposed dividend cut. Once a company gets comfortable reducing the dividend, it is very likely to do so again if business doesn't improve. Despite declining cash flow, Medical Properties Trust still pays a higher dividend yield than its peers, and it could easily cut its dividend again.

Dividend Safety Rating: D

Dividend Grade Guide

If you have a stock whose dividend safety you'd like me to analyze, leave the ticker symbol in the comments section. You can also take a look to see if I've written about your favorite stock recently. Just click on the word "Search" at the top right part of the Wealthy Retirement homepage, type in the company name and hit "Enter."

Good investing,


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