Is Medical Properties Trust a Millionaire Maker?

Key Points

• Medical Properties Trust is a real estate investment trust that owns healthcare properties.

• The REIT has run into material problems as some of its largest tenants have struggled financially.

• After multiple dividend cuts, Medical Properties Trust is trying to turn its business around.

• 10 stocks we like better than Medical Properties Trust ›

Medical Properties Trust (NYSE: MPW) has an attractively high 7.4% dividend yield. For reference, the S&P 500 index (SNPINDEX: ^GSPC) is yielding just 1.3% and the average real estate investment trust (REIT) has a yield of about 4.1%. Although the assets Medical Properties Trust owns may make that lofty yield look attractive, long-term investors need to think carefully before buying the stock.

What does Medical Properties Trust do?

Medical care isn't optional sometimes. If you are very sick or have had a bad accident, you have to go to the hospital. And that is exactly what Medical Properties Trust owns, with assets spread across North America, South America, and Europe. All in, it owns 393 hospitals across nine countries, including 31 U.S. states. It has relationships with 53 hospital operators.

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Image source: Getty Images.

There are a few things to keep in mind here. For starters, hospitals are large assets. Thus, the investment in each is material and, generally speaking, so, too, is the rent associated with each hospital property. Also, the number of Medical Properties Trust's lessees is fairly modest at 53. There are only so many companies that know how to run hospitals, which are highly complex businesses whether they are run by for-profit or not-for-profit entities. And that brings up the fact that hospitals are unique assets that aren't easily transitioned to alternative uses.

This is a much different focus than, say, a REIT that owns medical offices or senior housing assets. The nuances of Medical Properties Trust's hospital focus became a big problem when some of its largest tenants had financial problems. The end result was Medical Properties Trust being forced to cut its dividend, multiple times.

MPW data by YCharts

Is Medical Properties Trust a millionaire maker?

Medical Properties Trust's stock price has fallen about 80% from its peak. The dividend has declined roughly 70% after being cut twice. This has not been a millionaire-maker stock in the past. In fact, if an investor had put $1 million into the stock at its high, that would be worth only about $300,000 now. But looking at the stock today, after that huge price drop, some investors may be thinking it has rebound potential.

The truth is that Medical Properties Trust does have rebound potential. It is attempting to turn its business around and start growing again. There's a reasonable chance that will do that, too. After all, hospitals are vital assets for the communities they serve. It seems unlikely that the hospital business will go away.

However, go back to the problems noted above. After dealing with a series of troubled tenants, Medical Properties Trust isn't exactly working with a pristine balance sheet. Growth, meanwhile, really comes from acquisitions, which will be harder to get done thanks to the REIT's weakened financial state. And if any more of the company's small list of tenants run into trouble, the turnaround effort would become even harder. In fairness, the performance of its tenants is improving. But that is more of a stabilization of the business, not a sign that there's a huge growth opportunity ahead.

Medical Properties Trust probably isn't a huge investment opportunity

Sometimes when stocks fall out of favor in the short term, they represent huge long-term investment opportunities. Millions have been made by intrepid investors willing to step into turnaround stocks. But Medical Properties Trust's turnaround isn't likely to be a quick or easy process given the nature of its business. Unless you have a very long time horizon and a very strong stomach, you'll probably want to look at better-situated high-yield stocks.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.