Major stock market indexes are down significantly this year, with many of the most valuable companies in the world leading the descent. However, some companies are performing well. These include Medical Properties Trust(NYSE: MPW) and CVS Health(NYSE: CVS), two dividend payers crushing the market. CVS Health is up by 50%, while Medical Properties Trust's shares have risen 26%.
If these companies continue defying the market meltdown, they could be a great addition to any portfolio, but only if they can deliver long after the storm has subsided. Let's find out whether it's worth purchasing their shares.
1. Medical Properties Trust
Medical Properties Trust (MPT), a healthcare-focused real estate investment trust (REIT), faced a significant headwind when one of its largest tenants, Steward Healthcare, defaulted on rent and filed for bankruptcy. The company's revenue and earnings declined, and it was forced to slash its dividends -- twice. However, the stock is rebounding this year as the rest of the market is moving south.
MPT has moved closer to putting its issues in the rearview mirror. It signed deals to place new tenants in the facilities formerly occupied by Steward Healthcare. There is still some work to do here; MPT hasn't filled all these facilities and isn't receiving all the rent revenue from the ones it has. The new tenants will slowly ramp up rent payments until they match the full amount due in the fourth quarter of 2026.
However, MPT has made significant progress. Its portfolio is now more diversified than before, with average lease lengths of 18 years for its newest tenants. Furthermore, MPT has significantly improved its financial health by selling some facilities and issuing secured notes; it will use those proceeds to deal with short-term debt, making its near-term financial profile far more attractive.
The new MPT looks healthier than it did just a couple of years ago. But despite its strong performance this year, the stock is still down massively since its troubles first started:
Some investors worry that there's still significant uncertainty involved. However, it might be worth it for long-term income-seeking investors to take a chance on the company. As a REIT, Medical Properties Trust is required to distribute 90% of its earnings as dividends, and it currently offers a juicy forward yield of 6.1%. While it has cut its payouts twice recently, its stronger financial foundation means more slashes are somewhat unlikely in the foreseeable future.
MPT is slowly getting back on track. The stock has earned serious consideration for more adventurous dividend seekers.
2. CVS Health
CVS Health dealt with significant uncertainty over the past three years due to at least a couple of factors. First, the pharmacy chain leader lost revenue from the sale of coronavirus-related products as the pandemic receded. Second, and more importantly, it struggled to contain rising costs within its Medicare Advantage business, leading to lower earnings than anticipated. CVS revised its own guidance several times, and never in the right direction, much to the dismay of investors.
However, the company might be turning a new leaf. CVS is under new management. The healthcare leader appointed a new CEO, David Joyner, in October. As if to welcome its new head, the company delivered much better-than-anticipated results in the fourth quarter. It's unlikely that much of this was due to a CEO who took over while the fourth quarter was already in full swing, so the question remains: Can CVS Health right the ship?
My view is that while it's too early to say, the business has important strengths. CVS is a trusted, diversified healthcare brand with footprints beyond its pharmacy chain unit. It's a leading health insurer, has a primary care business, and recently launched Cordavis, a subsidiary that will manufacture biosimilars.
CVS could recover in the long run, but it's not clear what moves the new CEO will make to improve the business -- one of which could be to reduce the company's dividend. That's to say nothing of the competition it will continue to face from the increasingly popular Amazon Pharmacy.
Unlike Medical Properties Trust, CVS Health has yet to take tangible steps to put its challenges behind it. But given the company's pedigree, it might also be worth considering for dividend seekers who are comfortable with some risk and volatility.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Prosper Junior Bakiny has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.
