Income investors primarily look for three things when buying any stock. First, they obviously want to earn enough to meet their needs. Second, they want the income to be reliable. Third, they don’t want share prices to fall beyond dividend income.
Medical Properties Trust (MPW -0.12%) (MPT) and Verizon Communications (VZ 0.06%) They stand out as two stocks that many income investors may have on their radar screens. Which of these two ultra-high-yield dividend stocks is the better choice right now? Here’s how MPT and Verizon stack up against each other.
dividend
MPT easily wins over Verizon on one important front. The healthcare real estate investment trust (REIT) currently offers a dividend yield of 14.3%. That’s more than double Verizon’s dividend yield of 6.6%.
However, Verizon has an advantage based on its dividend track record. The telecom giant has increased its dividend for 16 consecutive years. MPT has raised its dividend for eight consecutive years.
What about the dividend reliability of this company? Verizon seems to come out on top in this category as well.
Some investors may be concerned that MPT may cut its dividend. REITs lease properties to hospital operators, many of which have faced financial challenges in the past few years One of MPT’s top tenants, Prospect Medical, has yet to pay its rent in full this year.
The good news is that the overall financial outlook for hospital operators is improving. MPT expects to fully recover all monies owed to Prospects over time. Assuming the company can deliver on its guidance range for 2023, it should be able to maintain dividends at current levels.
Verizon, meanwhile, appears to be in a strong position to continue its dividend growth streak. Its dividend payout ratio currently stands at a respectable 51%.
Big stock fall potential
Both of these stocks have fallen over the past 12 months. However, MPT’s plunge is much worse than Verizon’s. What are the chances of further declines that could wipe out any dividend income generated over the next few years?
Short sellers are roughly betting that MPT stock will continue to fall. The short percentage of float for REITs was around 29% as of March 15. By comparison, Verizon’s float was about 1% lower.
My view, though, is that the worst is probably over for MPT. The company recently announced the sale of 11 of its Australian hospitals. This move enabled MPT to reduce its debt. It’s possible that even better news could provide a small push.
I think Verizon’s fortunes should improve as well. The telecom giant’s growth prospects are better than it might seem at first glance.
To be sure, it’s possible that any of these stocks could decline by more than offset the income generated by the dividend. However, I expect both stocks to hold up well in the long run.
good choice
Back to our original question, which of these two ultra-high-yield dividend stocks is the better pick? My answer is… it depends on your investment style.
If you are an aggressive investor willing to take considerable risk, MPT should be attractive. Its yield is sky high. Stocks are dirt cheap. Yes, the stock is risky. But I think MPT’s underwriting process and diversified portfolio make its level of risk lower than some might believe.
If you’re more risk-averse, my view is that Verizon would be the better choice for you. Although the company is not without risk (for example, it has a large debt load), Verizon has long been a reliable source of income. The stock is also attractively priced at current levels.
Income investors look for the same things when buying stocks. However, how much weight they give to each factor will vary from person to person. Because of this, the better choice between MPT and Verizon will differ for different investors.