Income investors primarily look for three things in the stocks they buy. First, they obviously want to generate enough income to support themselves. Second, they want this income to be reliable. Third, they don’t want the decline in share price to outweigh dividend income.
Medical Properties Trust (MPW -0.12%) (MPT) and Verizon Communications (VZ 0.06%) stand out as two stocks that many income investors are likely to have on their radar screens. Which of these two ultra high yielding dividend stocks is the best choice right now? Here’s how MPT and Verizon compare.
MPT easily trumps Verizon on an important front. The SCPI in healthcare real estate (REITs) 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 dividend history. The telecom giant has increased its dividend for 16 consecutive years. MPT has increased its dividend for eight consecutive years.
What about the reliability of the dividends of these companies? Verizon also seems to win in this category.
Some investors might be fears MPT may have to cut its dividend. The REIT leases properties to hospital operators, many of whom have faced financial difficulties in recent years. One of MPT’s major tenants, Prospect Medical, has been unable to fully pay its rent so far this year.
The good news is that the overall financial outlook for hospital operators is improving. MPT expects to fully recover all money Prospect owes over time. Assuming the company can stay within its 2023 guidance range, it should be able to maintain dividends at current levels.
Verizon, meanwhile, appears to be in a strong position to continue its run of dividend increases. It is dividend distribution rate currently sits at a respectable 51%.
Risks of significant inventory declines
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 that further declines will wipe out any dividend income generated over the next few years?
Short sellers are betting quite heavily that MPT stock will continue to decline. The REIT’s short float percentage was nearly 29% as of March 15. By comparison, only about 1% of Verizon’s float was sold short.
My view, however, is that the worst is probably over for MPT. The company recently announced the sale of 11 of its Australian hospitals. This transaction allows MPT to reduce its debt. It is possible that more good news could even trigger a short press.
I think Verizon’s fortunes should also improve. The telecom giant’s growth prospects are better than it first appears.
Certainly, it’s possible that either of these stocks will drop enough to more than offset the income generated by the dividends. However, I expect both stocks to hold up well over the long term.
The best choice
Going back to our original question, which of these two ultra-high yielding dividend stocks is the better choice? My answer is…it depends on your investing style.
If you are an aggressive investor willing to take considerable risk, MPT should be attractive. Its performance is exorbitant. The stock is very cheap. Yes, the stock is risky. But I think MPT’s underwriting process and diversified portfolio also make its level of risk lower than some think.
If you are more risk averse, I think Verizon will be the best choice for you. Although the company is not without risk (for example, it is heavily in debt), Verizon has long been a reliable source of income. The stock is also attractively priced at current levels.
Income investors are looking for the same things when buying a stock. However, the weight they give to each factor varies from person to person. For this reason, the best choice between MPT and Verizon will also be different for different investors.