Medical Properties Trust, Inc. – From Market Perform to Outperform with Divi-X

They're few and far between but I do believe I found a new addition to my "Divi-X" 'Play of the Week' index.  I do not make these decisions lightly for any new addition to the 'Play of the Week' index dilutes the overall return of the index because the returns are then averaged over more securities.  In the case of Medical Properties Trust, it dragged the index down 2.75% from  25.42% to 22.67%. 

Medical Properties Trust, Inc. crossed my radar from my Twitter feed letting me know it had recently raised it's dividend.  After a few preliminary checks, I actually liked what I saw.  After further due diligence, I decided that I liked it enough to add to the 'Play of the Week' index.

Company Profile - Medical Properties Trust, Inc. (MPW)

Medical Properties Trust, Inc. is a self-advised real estate investment trust (REIT) focused on investing in and owning net-leased healthcare facilities. It conducts all of its business through MPT Operating Partnership, L.P. It acquires and develops healthcare facilities and leases the facilities to healthcare operating companies under long-term net leases. It also makes mortgage loans to healthcare operators collateralized by their real estate assets. The Company's portfolio consists of 202 properties, which includes 179 facilities that the Company owns and 14 properties controlled in the form of mortgage loans. The properties are leased/mortgaged to 29 tenants located in 28 states, and Germany, United Kingdom, Italy, and Spain. Of the total portfolio, 9 facilities are under development. Its facilities consist of 64 general acute care hospitals, 69 inpatient rehabilitation hospitals, 23 long-term acute care hospitals, 43 free standing emergency rooms, and 3 medical office buildings. (Source:  Google Finance)

http://phx.corporate-ir.net/phoenix.zhtml?c=185765&p=irol-reportsannual

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The Last Five Years

The Leverage Projection Worksheet

If we had invested $10,000 in Medical Properties Trust, Inc. five years ago, here is what the 'Leverage Projection Worksheet' would have looked like.

Medical Properties Trust Leverage Projection Worksheet

Medical Properties Trust Leverage Projection Worksheet

On Feb. 17, 2012, our 'BUY' price would have been $9.76/share and our dividend yield would have been 8.20%.  Based on a margin rate of 7.75%, a "PmtPerc" of 1.25%, and a "Multiplier Pick" of 65, "Divi-X would have afforded us a very impressive 1842.75 shares of (MPW).

Now because of the high dividend yield, we would have taken a more conservative approach and only leveraged in at 44.40% of the total purchase, which is still quite high, but easily doable with a steady dividend..

Returns To Date

And after five short years, here's what our results would have looked like (dividends not reinvested):

Medical Properties Trust Return Scenarios

Medical Properties Trust Return Scenarios

A few things to note about this chart:

  1. "Divi-X" maintained its lead over 'All Cash' for the entirety of the five year period.
  2. As of close, Feb. 17, 2017, "Divi-X" sits at a sizable 41.72%% advantage over MPW 'Without "Divi-X" for an average annual 8.34% outperformance over someone who just used cash five years ago.

Translation in Dollars

Medical Properties Trust Returns Scenarios

click to enlarge

At no point over the last five years would you have doubled your money without the help of "Divi-X."  If you had used "Divi-X," you would have crossed that milestone on seven separate occasions. 

3/31/2013 $22,535.88
7/1/2013 $20,195.34
8/1/2014 $20,385.63
11/30/2014 $20,241.29
7/1/2015 $20,686.22
3/1/2016 $20,272.47
12/1/2016 $20,071.19

Since Dec. 2016, to date, "Divi-X" remains above the "double your money" threshold.

Medical Properties Trust vs the S&P 500

I probably will not do this for every article but since it is a 'Play of the Week' selection, I thought I would add a different perspective.  It would make sense that if an investment model fails to perform better than the most common indexes, then why even bother with it at all?  I mean, why not just put all your money into an index fund that mirrors the Dow or the S&P and let a money manager worry about your portfolio?  And you would be absolutely right.  Who needs the headache?

MPW, IVV, SPY Five Year Comparison

MPW, IVV, SPY Five Year Comparison (Source: Google)

Above is a comparison chart of Medical Properties Trust, Inc. compared to two popular index funds that mirror the S&P 500;

SPDR S&P 500 ETF Trust (NYSEARCA:SPY) and iShares S&P 500 Index (ETF) (NYSEARCA:IVV).  I recently wrote an article applying "Divi-X" to SPY.  You can read about that performance by clicking here.
As you can see, there is less than a one percent difference between the performance of SPY and IVV.  That difference is likely the result of what the funds charge you to manage your money.  Compare those two to MPW, and the difference is substantial.  Almost a full 40%!  So why would you invest in MPW in the first place?  Probably for the income.  MPW pays a much higher dividend than either of those two funds.  But is that enough to justify buying a company whose share price has lagged so significantly?  Let's find out.
Medical Prop Trust Ret Scen 2

click to enlarge

 
Going back to our performance chart of MPW with and without "Divi-X," once you factor in the impact of dividends (not reinvested), after five years, an all cash investment (purple line) nets you a cumulative 79.47% return.  That's only between 4%-5% more than the index funds, or less than 1% a year on average.  Is it worth it?  I don't know.  That's for you to decide.  Do you want the income or the unrealized gains?
But if you look at the cumulative returns of "Divi-X" (green line), "Divi-X" blows them all out of the water with 121.19%.
Now, in all fairness, the results of the two index funds don't take into account the cumulative effect of dividends but I'll do you one better.  Let's compare, not just the cumulative effect of dividends, let's compare the results of the index funds with dividends reinvested versus "Divi-X" without reinvested dividends.
We're only going to compare IVV to "Divi-X."  There is no sense in comparing both index funds since their performance is practically identical.

(Source: https://www.ishares.com/us/)

Above is the performance of IVV for the last five years with dividends reinvested.  The final date stated in the chart is Feb. 10th, 2017.  Their chart feature wouldn't allow me to go to the most recent date.  Doesn't matter, results for the last week would not be too different.
After five years, IVV with dividends reinvested managed to garner a cumulative return of 88.72% (MWP without "Divi-X" and dividends reinvested only managed an 88.68% cumulative return).  "Divi-X" without reinvested dividends returned 121.19%.
Let's take it one step further.
IVV Since Inception

IVV Since Inception

IVV since inception, May 15th 2000, has managed about 117% total return with dividends reinvested.  "Divi-X" - 121.9% in the last five years with dividends 'NOT' reinvested!  Results will always vary, but can you see the value of "Divi-X?"

Dividend Yields


Now, for a look at our dividend picture.

MPW Dividend Yield on Cost

MPW Dividend Yield on Cost - click to enlarge

Immediately, in year one, "Divi-X" had a 0.66% yield advantage over 'Without.'  Over the last five years, that yield advantage has continued to widen.  After five years, that yield advantage now sits at 4.71% over 'Without' and will continue to widen year, after year, after year.

If you are reading this article and scratching your head, it's because you haven't learned our very simple system.
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Running Leverage Rate

The "Divi-X" System Workbook monitors one's 'Running Leverage Rate' to keep the user aware of if and when a deteriorating share price increases an investor's risk level beyond their acceptable risk tolerance level.

MPW Running Leverage Ratio

click to enlarge

Everything looks fantastic here.  Our loan balance is on a steady decline and our leverage ratio, or 'Levered Percentage' is outpacing the decline in our loan balance.  Exactly what you want to see.

Taking a New Position

Leverage Projection Worksheet

MWP Leverage Projection 2017

MWP Leverage Projection 2017

  1. We're lowering our "Multiplier Pick" because of the higher than normal dividend which still allows us to pick up an extra 489.47 shares for a grand total of 1245.33.
  2. My margin rate has increased to 8.25%.
  3. I'm still maintaining my usual 1.25% "PmtPerc."

Dividends

And finally, our dividend picture:

MPW 20YR Dividend Projection

MPW 20YR Dividend Projection

Looks like our "Divi-X" yield will be trailing into 2018 unless there is an unexpected dividend increase.  However, in 2019, we expect that "Divi-X" will take the lead in yield whether Medical Properties Trust, Inc. increases their dividend or not and, as always, our yield spread will continue to widen year, after year, after year.

Conclusion

Medical Properties Trust, Inc. is now a permanent member of the 'Play of the Week' index and I'll be following it daily with updates to you from time to time.  In full disclosure, I may be adding this to my own portfolio soon depending on market behavior over the next few days.  Till next time, many happy returns!

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Authored by Lee Carroll Wentker

All screen captures are taken from 'The "Divi-X" System Workbook'

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The security showcased here is for learning purposes only. It is not a recommendation or an endorsement of any kind. Do your own due diligence before making any investment.

All work is copyrighted by The Dividend Times, LLC 2015 - 2016

 

 

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