Buying a high-yielding dividend stock is great because you get more bang for your buck. If you were to invest $25,000 in a stock that pays 1%, that would generate just $250 in annual cash flow for your portfolio. But if the yield were 5%, you’d be making $1,250 per year — $1,000 more just by picking a higher yield.
A common concern for investors is that high-yielding dividend stocks may not be safe, and that they can’t keep their payments going for a long time. But that isn’t always the case. Two stocks that pay more than 5% that look to be safe income investments today are Medical Properties (NYSE:MPW) and AT&T (NYSE:T).
1. Medical Properties
Medical Properties is a real estate investment trust (REIT), so it has to pay 90% of its earnings back to shareholders. That’s a good thing for investors, because as long as the business is profitable, they know they’ll be receiving a dividend payment.
With 431 properties throughout the world, this REIT provides some solid diversification within the healthcare industry. Just under three-quarters (74%) of its portfolio is made up of general acute care hospitals, and inpatient rehabilitation hospitals account for another 10%. And the need for hospital space isn’t going to decline anytime soon, especially amid a pandemic, not to mention that potential long-term issues related to COVID-19 may remain unknown today.
Medical Properties reported its fourth-quarter results on Feb. 4. Its funds from operations (FFO) totaled $192.6 million for the period ending Dec. 31, up 19.1% year over year. For all of 2020, the REIT’s FFO totaled $757.7 million, representing growth at an even higher rate of 41.4%.
FFO is the number to focus on here, because it is effectively net income for REITs. It excludes gains and losses and items not related to operations, so it can give you a much more realistic picture of the company’s profitability and the sustainability of its dividend payments. Medical Properties’ FFO per share was $1.43 for 2020 — well above the $1.08 that it paid out in dividends per share over the previous four quarters. If you were to look strictly at the company’s per-share profits of $0.81 (based on net income, which can include non-cash expenses like depreciation), you may think the dividend is unsustainable.
But not only are the dividend payments safe, Medical Properties recently increased them to $0.28 every quarter, up 4% from its previous payouts. With the dividend hike, investors who buy the stock can now expect to earn a yield of 5.1%, which is well above the S&P 500 average of 1.5%.
Medical Properties can be an excellent stock for healthcare investors looking for some stable, recurring income without having to worry about their payouts being too risky.
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