2 Catalysts Could Cause This 6%-Yielding Dividend Stock to Soar by the End of 2026

Shares of Medical Properties Trust (NYSE: MPW) have gotten shellacked over the past few years. The hospital-focused real estate investment trust (REIT) lost nearly 80% of its value from its peak a few years ago.

Weighing on the stock has been a barrage of tenant issues and higher interest rates. Those problems forced the REIT to take several actions to shore up its portfolio and financial profile, including selling properties and slashing its dividend a couple of times.

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Those moves are finally starting to pay off. The REIT expects its rental income to rise steadily over the next two years, which could give it more cash to return to shareholders. These catalysts could cause the stock to soar by the end of next year.

Image source: Getty Images.

The steady rise to $1 billion

Two of Medical Properties Trust's former top tenants filed for bankruptcy over the past couple of years. That has had a meaningful impact on the REIT's rental income.

However, the healthcare REIT has since replaced its largest tenant with several financially stronger operators. They started paying rent on those properties during the first quarter, contributing $4 million in rental income. Rents from these tenants will steadily rise over the next two years until they reach a fully stabilized rate.

Medical Properties Trust expects to receive about $23 million in rent from these tenants in the fourth quarter of this year, which is around a $90 million annualized rate. This rental income will continue growing until it reaches an annualized rate of $160 million by October of 2026.

That gives the company a lot of visibility into its future rental income. CEO Ed Aldag said on the REIT's recent first-quarter conference call, "With the progress of our new operators are making across most markets, the steady contributions from our stabilized portfolio, we remain confident in our ability to reach total annualized cash rent of more than $1 billion once our new tenants are fully ramped."

On top of that, the REIT didn't receive any revenue from its investment related to another bankrupt tenant (Prospect Medical) or its investment in certain real estate assets in Colombia. Any recovery from these assets, either by finding new tenants for the Prospect properties or selling the assets, would add to its operating results or balance sheet strength in the future.

The expected rise in Medical Properties Trust's rental income should help boost its stock price in the coming quarters.

The flexibility to enhance shareholder returns

Medical Properties Trust has had to conserve cash over the past few years to shore up its balance sheet. As a result, it had to cut its dividend twice.

However, its efforts to bolster its balance sheet have worked. The REIT was able to issue $2.5 billion of bonds during the first quarter, which Aldag said would provide sufficient liquidity to cover all debt maturities through 2026.

Meanwhile, with its balance sheet back on a firmer foundation, its tenant profile improved, and its rental income rising, it shouldn't have trouble refinancing future debt maturities.

Because of that, Medical Properties Trust should have a lot more flexibility to return cash to shareholders beyond its current dividend level. Aldag said in the first-quarter earnings press release that the REIT is "well positioned to grow earnings from our existing in-place real estate portfolio, access capital for accretive growth in a uniquely attractive market, and deliver growing dividends and other returns to our shareholders."

The hospital owner could start to rebuild its dividend as its rental income rises. That would add to an attractive income stream that yields over 6%. In addition, chief financial officer Steve Hamner said on the call that the company could look to complete "other transactions to reposition and rationalize our equity value." Among the options it could consider is repurchasing its shares. Given the steep drop in its stock price, repurchases would be highly accretive to shareholders and could give shares a big boost.

A clear path to recovery

After sinking over the past several years, shares of Medical Properties Trust could finally start recovering. Rising rental income from replacement tenants will give the REIT more cash to return to shareholders. The hospital owner could start rebuilding its dividend or buy back its beaten-down stock.

Those catalysts could help propel the stock price, which, when adding in its dividend income, could enable Medical Properties Trust to produce a strong total return over the next couple of years.

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Matt DiLallo has positions in Medical Properties Trust. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.