Altria Stock vs. Medical Properties Trust: Which High-Yielding Dividend Is the Safer Option for Investors?
Investing in high-yielding dividend stocks can be risky. The yield is typically high for a reason, and it's usually not good. And the loftier the yield is, the more hesitant investors often are to invest in the stock, fearing that the payout may not last. Two stocks with incredibly high yields right now are Altria Group (NYSE: MO), the tobacco giant that pays investors 9%, and Medical Properties Trust (NYSE: MPW), a real estate investment trust (REIT) with a monstrous yield of 15%.
Below, I'll make a case for each one of these dividend stocks, highlighting both their strengths and weaknesses, and which one may be the safer option for you.
The case for Altria Group
Dividend investors value stocks with long track records of success and paying dividends. Altria falls squarely into that category: The company has not just been paying a dividend for decades, but it has also been increasing it as well. It's part of an exclusive club of dividend stocks known as Dividend Kings, companies that been raising their payouts for at least 50 straight years.
The big knock on Altria is that consumers are moving away from tobacco products for health reasons, which means its future growth and ability to keep paying a dividend is questionable. The company, however, is transitioning to offer smoke-free products as well. Its oral tobacco segment, which contains its smoke-free products, generated $2.7 billion in revenue for 2023, accounting for nearly 11% of Altria's top line.
And Altria doesn't need to flip a switch right away to smoke-free products. The transition for consumers will undoubtedly take time. The demand for cigarettes remains relatively resilient. While revenue for smokable products declined last year to $21.8 billion, the net effect after excise taxes was a decrease of just 1.6%. The company's adjusted diluted earnings per share rose by 2.3% last year to $4.95. And while the stock's payout ratio remains a bit high at 84% of earnings, it does suggest the dividend is sustainable.
The case for Medical Properties Trust
Medical Properties Trust (MPT) has struggled to win over investors in recent years, and that's a big reason its yield is as high as it is. In just the past 12 months, shares of the healthcare-focused REIT have plunged 41% (Altria, by comparison, has climbed 7% in value).
MPT has faced problems with tenants, but the company is making efforts to improve its financial situation by divesting hospitals to strengthen its balance sheet. Last year, it also reduced its quarterly dividend payment to $0.15 from $0.29. By doing so, MPT made it easier for the business to be able to sustain that payout.
Investors may be turned off by MPT's financials, and rightfully so, because they were horrible last quarter. The REIT reported a loss of $663.9 million for the last three months of 2023 because the company has been incurring impairment charges and writing off rent. These charges are nonrecurring in nature, however, and MPT should get back to posting a profit in future quarters. And with a strategy centered around adding $2 billion in incremental liquidity this year, the company may be in a much better position toward the latter part of the year, depending on how its asset sales go.
MPT's business admittedly doesn't look great, but management is taking steps to improve its balance sheet and liquidity, which could make it a much better buy in the long run.
The decision for most income investors should be easy
As uncertain as Altria's business may look heading into the future, it's in much better shape today than MPT. A company that is selling assets and focusing on liquidity has all the signs of a struggling business, which is not something most income investors want to worry about. While there can be a lot of upside for MPT if its turnaround plan is successful, there's also huge risk that comes along with it.
In terms of safety, Altria is clearly the safer option. It does, however, come with risks of its own. If you're a risk-averse investor, you may still be better off avoiding both of these stocks altogether and pursuing lower-yielding stocks with safer payouts instead.
Should you invest $1,000 in Altria Group right now?
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Altria Stock vs. Medical Properties Trust: Which High-Yielding Dividend Is the Safer Option for Investors? was originally published by The Motley Fool
