Finally Healthy, This Ultra-High-Yielding Dividend Stock is Giving Investors a Big Raise

Medical Properties Trust (NYSE: MPW) has faced a series of challenges over the past few years. Two of its largest tenants went bankrupt, impacting its rental income. That came at a time when interest rates were on the rise, making it difficult for the real estate investment trust (REIT) to refinance debt as it matured.

However, the hospital owner has worked hard to address those problems. It now has a much healthier tenant base and financial profile. That recently gave it the confidence to raise its dividend by 12%, boosting the yield to 7% and putting it even further above the S&P 500's 1.2% dividend yield. With the healthcare REIT finally healthy again, it's becoming an enticing option for income-seeking investors.

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Finally, a step in the right direction

Medical Properties Trust has taken several steps to shore up its tenant base and balance sheet over the past few years. It has sold off several properties to repay debt. It also replaced its bankrupt tenants with financially stronger operators. This progress allowed the company to secure new financing for some of its properties, enabling it to refinance existing debt.

Additionally, the REIT reduced its dividend payment twice over the past couple of years, slashing it from $0.29 per share to $0.08 per share. That reduction allowed the landlord to retain more cash to repay debt.

The REIT has raised several billion dollars in new capital over the past year to strengthen its financial profile. Meanwhile, its replacement tenants are starting to pay rent on those properties. This progress has given the REIT the confidence to start rebuilding the dividend by raising the payment by 12% to $0.09 per share. Medical Properties Trust also authorized a $150 million share repurchase program. The repurchase program will allow it to return additional cash to investors by buying back its beaten-down shares (the stock price is currently nearly 80 % below its 2022 peak).

More increases could be forthcoming

Medical Properties Trust has replaced its bankrupt tenants with several new operators. The REIT is giving those new tenants time to ramp up their operations by slowly increasing the rental rates they pay. One group of five tenants that took over 17 properties from its former top tenant started paying rent earlier this year at a low initial rate. Rents will steadily escalate each quarter, reaching 50% of the fully stabilized rate by the end of this year and achieving full stabilization of $160 million in annualized rent by the end of 2026.

Meanwhile, another new tenant took over the operations of six properties from another bankrupt operator this past August. Medical Properties Trust agreed to defer all the rent owed by this new operator for the first six months and will defer 50% of the rent owed for an additional six months, all of which is payable over the remaining lease term. Once fully stabilized, this tenant will pay $45 million in annual cash rent.

Once these new tenants reach their fully stabilized rates at the end of next year, Medical Properties Trust expects to collect over $1 billion in annual rental income across its portfolio. This growing rental income should enable the REIT to return additional cash to investors by continuing to rebuild its dividend. It could also increase its share repurchase authorization if the stock price remains low. Additionally, Medical Properties Trust could use some of its growing free cash flow to invest in new hospital properties to further increase its rental income.

A healthy option for passive income

While it has taken some time, Medical Properties Trust is finally healthy again. The REIT has replaced its troubled tenants with financially stronger operators and strengthened its balance sheet. As a result, it has started to rebuild its dividend. With built-in rent growth ahead, the payout could continue rising over the next couple of years. That makes it an attractive option for investors seeking a big-time income stream.

Matt DiLallo has positions in Medical Properties Trust and has the following options: short January 2026 $4.50 calls on Medical Properties Trust. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.