It’s not typically that Security Internet will get it improper, particularly in the case of dividends it deems secure. Final yr, we checked out Medical Properties Belief (NYSE: MPW).
On the time, the corporate had loads of money movement, a low sufficient payout ratio and a strong historical past of annual dividend raises – all the pieces Security Internet seems for in a dividend inventory.
Regardless of its then-high 9.7% yield, Security Internet gave Medical Properties Belief an “A” for dividend security.
At the moment, it’s a special story.
Medical Properties Belief, an Alabama-based actual property funding belief (REIT), is a landlord for hospitals and is the second-largest nongovernmental proprietor of hospitals on this planet.
The REIT’s yield continues to be over 9%, regardless of the inventory having fallen roughly 40% since December 2022. Although the corporate was nonetheless producing loads of money movement, Medical Properties Belief slashed the dividend, which is a cardinal sin when analyzing dividend security.
The corporate lowered the latest quarterly dividend to $0.15 from $0.29 because it lowered debt and handled decrease funds from operations (FFO), the measure of money movement we use for REITs.
FFO isn’t anticipated to be a lot decrease this yr, only a $7 million drop from $934 million to $927 million. Whereas we by no means wish to see FFO go down, Medical Properties Belief can nonetheless simply afford the anticipated $628 million in dividends this yr. And the quantity paid in dividends will likely be even decrease than that subsequent yr, as the corporate paid the next dividend within the first two quarters of this yr.
Administration mentioned it needs the payout ratio to be lower than 60%, which is an affordable quantity.
So the primary points listed here are declining money movement and the just-imposed dividend reduce. As soon as an organization will get snug decreasing the dividend, it is vitally doubtless to take action once more if enterprise doesn’t enhance. Regardless of declining money movement, Medical Properties Belief nonetheless pays the next dividend yield than its friends, and it might simply reduce its dividend once more.
Dividend Security Score: D
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