Dividend Darlings or Dud Stocks?
When it comes to investing in dividend stocks, it’s essential to separate the wheat from the chaff. While many companies offer attractive dividend yields, not all of them are created equal. In this article, we’ll examine two dividend-paying stocks that may not be as appealing as they seem: Medical Properties Trust (NYSE: MPW) and Walgreens Boots Alliance (NASDAQ: WBA).
A High-Yield Trap
Medical Properties Trust, a real estate investment trust (REIT) focused on the healthcare sector, boasts an impressive forward yield of 6.91%. However, beneath the surface lies a more complex story. The company’s yield was once twice as high, but it was forced to cut its payouts twice in one year due to issues with a major tenant, Steward Healthcare. This tenant’s inability to pay rent led to a significant headwind for MPT.
Moving Forward, but Cautiously
MPT has taken steps to mitigate this risk by finding new tenants for 15 of the 23 hospitals previously owned by Steward Healthcare. While this move brings diversity and a predictable source of income, it’s too early to celebrate. The company still carries significant risk, and dividend seekers should exercise caution.
A Retail Pharmacy Giant Struggles
Walgreens Boots Alliance, another high-profile dividend stock, cut its payouts by 48% in January. This move was not unexpected, given the company’s slow revenue growth and occasional net losses. The retail pharmacy giant faces stiff competition, including from online pharmacies like Amazon, which offers free rapid delivery options to its Prime members.
Seeking a Turnaround
Walgreens has announced plans to close 1,200 stores over the next three years to cut costs and become more efficient. The company is also expanding its presence in the primary care market, which could add diversity to its business. While these initiatives may bear fruit, Walgreens’ recent dividend cut and financial underperformances make it an unattractive option for dividend investors, despite its high forward dividend yield of 10.7%.
A Word of Caution
Before investing in Medical Properties Trust or Walgreens Boots Alliance, consider the bigger picture. While these companies may offer attractive dividend yields, their underlying performance and risk profiles make them less appealing to income investors. Instead, focus on dividend stocks with a proven track record of stability and growth.
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