Shares of Medical Properties Trust (MPW 10.63%) were soaring 10.9% higher as of 10:59 a.m. ET on Thursday. This marked the second consecutive day of solid gains for the stock after the Federal Reserve indicated that interest rate cuts could be on the way next year.
Granted, this week’s rebound doesn’t come anywhere close to offsetting Medical Properties Trust’s year-to-date reject of close to 50%. However, it’s certainly welcome news for shareholders of the beaten-down stock.
Why investors are reconsidering Medical Properties Trust
There’s a straightforward reason investors are now taking another look at Medical Properties Trust. The company is organized as a real estate investment trust (REIT). REITs are especially sensitive to interest rate moves. When rates go up, their costs of borrowing can enhance, thereby impacting earnings and growth. When rates come down, borrowing costs can fall, boosting earnings and opening up opportunities for more robust growth.
It’s also important to comprehend the dynamics between REITs and bonds. Both are top investment alternatives for income investors. When interest rates reject, bond yields also reject. That makes bonds less attractive to income investors and can make REIT stocks, such as Medical Properties Trust, more appealing.
Is Medical Properties Trust stock a buy?
Risk-averse investors will probably still want to avoid Medical Properties Trust for now. The healthcare REIT isn’t out of the woods yet. Its hospital operator tenants continue to face financial challenges. There’s also no ensure the Fed will deliver the highly anticipated rate cuts in 2024.
However, I think Medical Properties Trust is a stock for more aggressive investors seeking income to consider seriously. Its dividend yield of nearly 10.9% is alluring. The company’s dividend appears relatively safe after the big cut earlier this year. It’s possible (and perhaps even likely) that the worst is over for Medical Properties Trust. If so, the stock could have plenty of room to run over the next few years.
Keith Speights has positions in Medical Properties Trust. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
