Medical Properties Trust (NYSE:MPW) is bringing more pain than yield to its current shareholders. However, there’s room for potential gains down the road for patient investors. It’s probably not right for everyone, but I am bullish on MPW stock because Medical Properties Trust has a sensible-sounding debt-reduction plan in place.
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Headquartered in Alabama, Medical Properties Trust is a real estate investment trust (REIT) that specializes in medical properties, especially hospitals. Holding MPW shares is an interesting way to get exposure to the U.S. healthcare market and real estate at the same time.
Medical Properties Trust usually flew under the radar until earlier this year, when the company made a big change to its dividend. At first glance, you might not like what you’ll hear in the news about Medical Properties Trust’s dividend. I invite you to look at the big picture, however, as Medical Properties Trust doesn’t actually belong in the stock market’s intensive care unit.
Medical Properties Trust: Measuring the Financials
I’ll admit that my usual habit is to look at a company’s EPS (earnings per share) when gauging its financial health. Medical Properties Trust is a REIT, however, and EPS isn’t necessarily the most important metric for this type of business.
Instead, I am choosing to use funds from operations (FFO) since this is a standard bottom-line measure for REITs. During 2023’s second quarter, Medical Properties Trust reported normalized funds from operations (NFFO) of $285 million ($0.48 per diluted share). This demonstrates moderate improvement over the year-earlier quarter’s NFFO of $275 million ($0.46 per diluted share). For the full year, Medical Properties Trust expects to report NFFO in the range of $1.53 to $1.57.
I don’t see anything objectionable about those results and guidance, but MPW stock has crashed this summer and analysts must adjust their price targets accordingly. Thus, it shouldn’t be too shocking that Barclays (NYSE:BCS) analyst Steve Valiquette reduced his price target on Medical Properties Trust stock from $12 to $10 earlier this month. Nevertheless, Valiquette chose to keep his Overweight rating on the shares, so that’s a positive sign.
Medical Properties Trust’s Dividend Cut: Part of a Bigger Plan
So, here’s why Medical Properties Trust became a topic of conversation among financial traders this summer. The company slashed its dividend from $0.29 to $0.15 per share. To make matters worse, JPMorgan (NYSE:JPM) swiftly downgraded its rating on MPW stock from Neutral to Underweight.
However, as we’ll see in a moment, the analyst community generally envisions Medical Properties Trust shares gaining value over the next 12 months. Still, that dividend cut of nearly 50% is surely painful for income-focused investors. Yet, it’s not a bad dividend even after the cut, and more importantly, Medical Properties Trust’s new dividend should be more sustainable.
TipRanks contributor Nikolaos Sismanis recently wrote an article, which I consider to be a must-read on this topic. He observed that Medical Properties Trust’s debt recently totaled $10.5 billion. In order to reduce that debt load, the company released a plan to strengthen its balance sheet.
Part of the plan entailed a dividend cut. Hence, the shock and horror of the dividend cut have already been priced into MPW stock.
Furthermore, Medical Properties Trust has “identified certain non-leased and non-real estate assets to be sold,” according to a press release. It’s worth noting that the company has already sold $105 million worth of its interest in Steward Health Care System’s asset-backed credit facility.
On top of all that, Medical Properties Trust signaled its intention to “scale back discretionary operating expenses and other costs.” I couldn’t find any specific details on this, so prospective and current investors should keep a lookout for further developments on Medical Properties Trust’s cost-cutting strategy.
Is MPW Stock a Buy, According to Analysts?
On TipRanks, MPW comes in as a Hold based on three Buys, two Holds, and three Sell ratings assigned by analysts in the past three months. The average Medical Properties Trust stock price target is $9.00, implying 26.7% upside potential.
Conclusion: Should You Consider MPW Stock?
As strange as this might sound, I tend to agree with Sismanis’ claim that Medical Properties Trust’s dividend reduction is actually bullish. The company still rewards the shareholders with a decent dividend, and now, it should be more sustainable as Medical Properties Trust works diligently to reduce its debt burden.
Not everyone wants to invest in a company that’s only a Hold on Wall Street instead of a Strong Buy. I understand this, so be sure to conduct your due diligence on Medical Properties Trust very carefully. If you don’t mind taking on some risk and accepting a reduced dividend, however, then MPW stock is an off-the-beaten-path asset that’s worth considering.
