Some stocks generously pay dividends every quarter just for holding them. Others may not offer such perks but possess huge upside potential. However, there aren’t many stocks that fit into both categories.
Medical Properties Trust (NYSE: MPW) (MPT) is an exception. This high-yield dividend stock boasts a yield of over 14%, and Wall Street believes it could surge by 56%.
A Common Underlying Cause
MPT’s high dividend yield and the gap between its current stock price and consensus price target share a common root cause—a sharp decline in the stock’s price. MPT shares have plunged more than 60% over the past 12 months.
Real estate investment trusts (REITs) like MPT often offer high dividend yields, but historically, MPT’s yield has ranged between 4% and 8%. The recent massive sell-off has pushed its yield into the double digits.
MPT’s huge upside potential isn’t due to analysts raising their price targets. Most analysts have maintained a stable outlook for MPT over the past year. The key point is that even though MPT’s stock price has dropped significantly, analysts haven’t adjusted their price targets downward.
Why Did MPT Shares Drop So Much?
There are three major reasons for MPT’s steep decline:
- Rising Interest Rates – Since early last year, interest rates have surged. REITs heavily rely on borrowing to finance property acquisitions, making them particularly sensitive to high interest rates.
- Tenant Financial Struggles – Several hospital operators renting MPT properties have faced financial difficulties.
- Pipeline Health went through Chapter 11 bankruptcy restructuring.
- Prospect Medical has struggled to fully pay its rent this year.
- Short-Seller Attacks – The third major reason is the impact of short-selling pressure. Last week, MPT filed a lawsuit against short-seller Viceroy Research, accusing it of making “baseless claims” to drive down the stock price.
Is Wall Street Right?
If MPT stock rises anywhere near Wall Street’s price target over the next 12 months, it would be an undeniable buy. But is Wall Street right? The answer is twofold.
First, I agree that analysts are correct in predicting that MPT stock should rise.
- MPT has reported good news in recent weeks, including the sale of 11 properties in Australia.
- Despite Pipeline’s bankruptcy, MPT fully recovered all rent payments from the operator.
- The sale of a Connecticut facility operated by Prospect Medical is expected to close within a few months.
The overall financial outlook for hospital operators is improving. MPT CEO Ed Aldag stated in the company’s Q4 earnings call that “we see very encouraging prospects for our tenants in every aspect.”
Last week, MPT issued a shareholder letter, where Aldag made a strong case for the company and stock. He emphasized:
- MPT’s strong underwriting track record
- A well-diversified portfolio
- Consistently solid business performance in a challenging market
Will MPT Stock Really Soar 56%?
The second answer to whether Wall Street is right is: maybe. While it’s impossible to predict with certainty that the stock will jump 56% in the next year, it is definitely possible.
However, several factors could hinder such a dramatic rebound, including:
- Persistently high interest rates
- A potential economic recession
I expect MPT stock to deliver solid returns next year, though perhaps not as high as analysts predict. I also believe that MPT’s extremely high dividend yield will eventually decrease—not due to a dividend cut, but as a result of a rising stock price.
If I’m right, MPT’s 14%+ dividend yield won’t last much longer.
