2 ultra-high yielding dividend stocks you’ll regret not buying at these prices
Equities have been under a lot of pressure this year, weighed down by rising interest rates to fight inflation. If there is a silver lining on the sell side, dividend yields move inversely to stock prices. For this reason, many dividend yields are much higher right now.
Of them dividend stocks with high yields are REP properties (REP -1.33%) and Medical Properties Trust (MPW 0.80%). This is largely due to the massive sell-off in their stock prices this year. Here’s why income-oriented investors won’t want to miss this opportunity.
Financial flexibility to execute your strategy
Shares of EPR Properties have fallen more than 20% from their most recent high. This prompted the real estate investment trust (REITs) dividend yield of up to 7.7%. That’s more than double the REIT industry average and several times the dividend yield of 1.6% on a S&P500 index fund.
While rising interest rates have played a role in making it more expensive for REITs to borrow money, it’s not the only factor weighing on EPR Properties’ share price. . The other issue is that one of the REIT’s largest tenants focused on experiential real estate, Cineworld Group (the parent company of Regal Cinemas), has filed for bankruptcy due to high debt levels and the continued effect of the pandemic on cinema attendance. This has investors concerned that Regal is not paying rent.
However, EPR Properties tends to have the most profitable locations in the industry. While it held 3% of theaters in North America, those locations captured 8% of the box office. Because of this, Regal will likely continue to pay rent or risk losing a profitable location to another operator.
Even if Cineworld stops paying rent, EPR Properties has enough cushion to maintain its sizeable dividend. The company expects to generate $150 million in excess cash after paying its dividend this year. Meanwhile, it has a strong, investment-grade balance sheet with plenty of cash ($168 million in cash and a $1 billion undrawn credit facility) and no debt maturing until 2024.
This gives him the financial flexibility to continue to grow his experiential real estate portfolio as he strives to diversify outside of theaters. It made nearly $240 million in investments in the first half of the year and planned to invest $500 million to $700 million in acquiring experiential real estate this year. These transactions are expected to increase its rental income and reduce its exposure to the theater sector, helping to further improve the long-term sustainability of its sizeable dividend.
Get a healthy dose of cash to keep closing deals
Medical Properties Trust’s share price has fallen more than 40% from its peak at the start of the year. This pushed the Healthcare REITs dividend yield up more than 8%.
A significant burden to the company has been the effect of rising interest rates on its ability to access capital to fund new acquisitions. This is evident in the REIT’s revised acquisition outlook. CFO Steve Hamner noted on the REIT second quarter conference call that “We previously predicted that our acquisition volume in 2022 would be between $1 billion and $3 billion.”
However, Hamner noted, “given the rapidly and dramatically changing capital markets and global economic environment, even since our last earnings call, acquisitions will…most likely be on the lower end of this fork”. That’s a big difference for a REIT that has acquired more than $3 billion in real estate in each of the past two years.
With debt and equity being more expensive, Medical Properties turned to recycling capital to give it the funds to make acquisitions. The REIT recently unveiled a series of agreements which will free up $600 million in cash that it can use to strengthen its balance sheet and make accretive acquisitions. These future transactions are expected to help increase its funds from operations, allowing Medical Properties Trust to continue to increase its dividend, which it has done for the past eight consecutive years.
Investors also overlook the positive effect of inflation on the company’s rental income. Medical Properties Trust’s leases have built-in rate escalation clauses, many of which are linked to the rate of inflation. Because of this, the company expects its rental income to increase by $57 million, or 4.4%, next year. This built-in rental growth can help support a higher dividend.
Don’t miss this opportunity
Shares of EPR Properties and Medical Properties Trust have fallen this year. Because of this, their dividend yields have reached eye-catching levels. These payouts seem safe, given the cash the two companies have to pay dividends and execute their strategic plans. This makes them look like attractive buys right now that income-oriented investors might regret not taking advantage of in the future.
Matthew DiLallo has positions in EPR Properties and Medical Properties Trust. The Motley Fool recommends EPR Properties. The Motley Fool has a disclosure policy.