Medical Properties Trust, Inc. (NYSE:MPW) currently pays its investors a quarterly dividend of $0.26 which yields just over 5% in dividend income annually. That’s a fairly strong payout given the S&P averages a dividend yield of just 1.85%.
During 2019, Medical Properties had a very strong year, with its share price rising by more than 30%. However, that’s been an abnormal performance, to say the least, given that over five years the stock has increased by just 41%.
Any capital appreciation investors earn from the stock should be seen as a bonus as the real estate investment trust (REIT) is going to appeal primarily to income investors who are looking to count on the dividend income. And when analyzing a dividend stock, it’s important to consider both its profitability and level of free cash flow to determine whether its payouts are sustainable.
Medical Properties has earned $324 million in net income over the past four quarters, with its diluted earnings per share (EPS) coming in at $0.80. That’s a concerning figure given that annual dividend payments totaling $1.04 come in well above that tally.
In 2018, EPS was $2.76 and it could be that the company bounces back in 2020, but there’s definitely some risk there when looking at earnings.
If we look at the company’s free cash, however, we see that it has generated $477 million over the past 12 months, and that’s been well above the $383 million that Medical Properties paid out in dividends over the same period.
For now, the dividend looks like it may be okay but investors should be careful with this stock as declining profits could spell trouble for the long-term health of its payouts.