Put it on cruise control. This is a way to make driving easier on long journeys. It is also a way to facilitate passive income.
There is no simple button press to generate passive income like there is on a car. However, investing in dividend stocks is pretty close. Want to earn $10,000 a year in passive income? Buy these safe, high-yield dividend stocks.
Meet a hospital juggernaut
Governments are the biggest owners of hospitals in the world. But Medical Properties Trust (MPW 2.42%) (MPT) comes third. The Healthcare Real Estate Investment Trust (REIT) currently owns 440 hospitals with 46,000 licensed beds.
MPT is headquartered in Birmingham, Alabama, and the majority of its hospitals are located in the United States. However, the company has steadily expanded internationally. It now has hospital facilities in Australia, Colombia, Finland, Germany, Italy, Portugal, Spain, Switzerland and the UK.
Although MPT owns the hospitals, it does not manage them. The company leases facilities to hospital operators. Its long-term net leases require tenants to bear most property-related expenses. MPT also sometimes offers mortgages to hospital operators with their real estate assets as collateral.
MPT has been a winner for investors over the years. Since mid-2012, it has delivered a total return of well over 200%, including reinvested dividends.
Relatively Safe Passive Income
These dividends are the key to generating passive income with MPT. The company’s dividend yield currently exceeds 7.6%. An initial investment of less than $132,000 would earn you at least $10,000 in dividend income per year, and this passive income should be relatively safe.
As a REIT, the company must return at least 90% of its taxable income to shareholders in the form of dividends. MPT has increased its dividend for 10 consecutive years.
The biggest risk to MPT’s dividend is that the company’s earnings decline enough to cause a dividend cut. However, this risk seems low for several reasons.
First, MPT’s portfolio is spread across 53 different hospital operators. None of these operators contribute more than 11.5% of the company’s total adjusted revenue. No facility represents more than 3% of total assets.
Second, MPT’s underwriting and leasing structures further reduce its risk. This is the case even if a tenant declares bankruptcy. As an example, one of MPT’s former tenants – Adeptus Health – filed for bankruptcy in 2021. However, MPT never reduced its rents and came out of the situation with a profitable result.
Third, MPT is largely hedged against inflation. As mentioned earlier, tenants bear most of the maintenance costs for properties. MPT’s leases also include automatic rent increases.
Finally, MPT continues to grow, further diversifying its portfolio. CEO Edward Aldag said in the company’s first quarter update that MPT expects to make acquisitions of between $1 billion and $3 billion in 2022. He said the company plans to “focus on the most attractive opportunities available” and primarily fund deals with the proceeds of other transactions rather than issuing new shares.
There’s no doubt that buying these high-yielding dividend-paying stocks can net some investors $10,000 in passive income a year. MPT’s dividend also looks relatively safe, thanks to its solid business model.
However, it is still important to invest wisely. No single dividend stock should make up too large a portion of an overall portfolio. Just as MPT reduces its risk by diversifying, investors should reduce their risk by investing in several different assets.
Also keep in mind that MPT’s share price can be volatile. If you are investing but need to raise cash by selling stocks in a short period of time, it is quite possible that you will lose money.
Buying MPT stock is like putting a car in cruise control. But even with cruise control, you still need to keep your hands on the wheel and your eyes on the road. This analogy applies to MPT (and any other investment, for that matter).