Medical Properties Trust (NYSE: MPW) can’t seem to stop its downward spiral. The healthcare-focused real estate investment trust (REIT) is already off to a horrible start to 2024, with its share price nosediving recently after the company posted an update on one of its problematic tenants, Steward Health.

Are investors overreacting to these latest developments, and has the stock become a better value buy? Or is this just a falling knife that you’re better off steering clear of?

Steward Health continues to be a problem for Medical Properties

On Jan. 4, Medical Properties Trust (MPT) issued an update on one of its most troubled tenants, Steward Health. MPT says that as of the end of 2023, Steward’s total unpaid rent was $50 million. While that’s not a huge amount of money, MPT has made other moves that have likely put investors on alert.

MPT also announced it has engaged with a financial advisor, Alvarez & Marsal Securities, LLC, to help with recovering uncollected rent and outstanding loans. And it’s also working on a plan to help improve Steward’s liquidity “and restore its balance sheet.” This suggests that there could be much more risk ahead for MPT if Steward’s financials don’t improve soon. The situation is concerning enough that the company says it will also provide Steward with a $60 million bridge loan.

In the fourth quarter, MPT says it will incur a non-cash charge related to its rent receivables, which will total around $350 million, underscoring the REIT’s collection issues.

Is the dividend in danger?

The big question for MPT investors undoubtedly circles back to the dividend. After all, that’s the main reason investors would be holding shares of the company in their portfolios. In MPT’s recent press release, it said that if it removed contributions from Steward-related investments, that would have a negative impact of $67 million on its adjusted funds from operations (AFFO) in its third-quarter results , which ended on Sept. 30, 2023. The REIT says that based on its AFFO, its payout ratio would be in the high-70% range, suggesting that the dividend is still sustainable.

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But when the company announced it was cutting its quarterly dividend last year from $0.29 to $0.15, it said that the new dividend’s payout ratio was just 50% of AFFO.

The REIT’s diversification outside of Steward and its confidence in still being able to maintain its dividend are encouraging, but it’s hard not to remain skeptical given the lengths that MPT is going to in trying to strengthen Steward’s financial position. In the past the company has had problems with other tenants as well. Last year, it told analysts on an earnings call that it didn’t collect full rent from Prospect Medical.

MPT’s ongoing challenges with its tenants shouldn’t inspire a whole lot of confidence from investors. And with the stock down around 30% already in 2024, it’s clear that there is no shortage of skeptics.

Is the stock too risky to invest in?

Prior to this latest press release, I was optimistic that MPT could have a good year in 2024, especially with interest rates potentially coming down. But now my concern is that even after cutting its dividend last year, things have deteriorated so badly at MPT that it needed to let investors know of the current situation.

The safest thing investors can do at the moment is to avoid the healthcare stock for the time being. If the dividend’s safety is uncertain, which appears to be the case right now, then there simply isn’t much of a reason to consider investing in the stock. Even as the stock hits new 52-week lows, investors shouldn’t be tempted to take a chance on MPT. While it may be an appealing option for contrarian investors looking to buy the stock at dirt-cheap prices, the risk is just too high for this to be a tenable option for most investors.

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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.

Is Medical Properties Trust Stock a Buy Now? was originally published by The Motley Fool