Since 1926, dividends have contributed approximately 32% of the total return for the S&P 500, while capital appreciations have contributed 68%. Therefore, sustainable dividend income and capital appreciation potential are essential for total return expectations.
We love dividend stocks here at Wall St. 24/7, especially quality ultra-yield companies that continue to deliver consistent passive income streams for shareholders. However, investors must be careful when buying shares of companies paying big dividends before laying down their hard-earned money.
We screened our 24/7 Wall St. Ultra-Yield dividend stock universe, looking for companies paying 10% and higher dividends that investors should avoid, and found two that should be avoided like the plague.
Medifast
This company offers fast weight loss products and a massive 16.20% dividend, but perhaps only for a short time. Medifast, Inc. (NYSE: MED) manufactures and distributes weight loss, weight management, healthy living products, and other consumable health and nutritional products in the United States and the Asia-Pacific.
The company offers these under OPTAVIA, Optimal Health by Take Shape for Life, and Flavors of Home brands.
- Bars
- Bites,
- Pretzels,
- Puffs,
- Cereal crunch,
- Drinks,
- Hearty choices,
- Oatmeal,
- Pancakes,
- Pudding,
- Soft serves
- Shakes
- Smoothies
- Soft bakes,
- Soups
It markets its products through point-of-sale transactions over e-commerce platforms.
The stock was crushed last week after reporting earnings that saw the revenue forecasts plunge for the company. Revenue and earnings-per-share estimates were cut by Wall Street analysts that cover the stock down to a level that would commiserate with a 35% drop in sales for 2024. Revenue estimates were slashed to $694 million from $820 million, with earnings-per-share expected to drop to $1.91 during the same period.
While the company reported quarterly revenue that beat estimates, earnings-per-share were a dreadful $0.55 versus expectations of $0.96. But the awful forward guidance took the shares to the woodshed for a thrashing.
The slew of new weight-loss drugs like Ozempic and Wegovy (which are the same drugs but sold under different brands) may have contributed to the issues at Medifast, and it is very likely that the huge dividend will have to be cut.
Medical Properties Trust
While the company finally reported some good news recently, the dividend may be unsustainable. Medical Properties Trust (NYSE: MPW) is a self-advised real estate investment trust formed in 2003 to acquire and develop net-leased hospital facilities.
The Company has grown to become one of the world’s largest owners of hospital real estate, with 439 facilities and approximately 43,000 licensed beds as of December 30, 2023.
The company’s financing model facilitates acquisitions and recapitalizations and allows hospital operators to unlock the value of their real estate assets to fund facility improvements, technology upgrades, and other investments in operations.
The stock has already dropped almost 85% of its value over the last two years, and paying a $0.88 dividend per share, which was already cut 50% last year, may not remain possible for a company expected to earn only $0.77 per share this year and next year.
Medical Properties Trust announced some positive news when they reported they sold five additional hospitals in February for $350 million, significantly boosting the balance sheet liquidity. Further sales will increase the total up to $480 million. In addition, funds-from-operations came in above estimates. However, the reality is that the massive dividend will likely get cut again.
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