1 low dividend stock to avoid in 2024 and 1 to consider buying and holding forever

Buying dividend stocks during good times is a great way to ensure you have the potential to profit from a turnaround. This is also a great way to get higher yields on stocks than you would otherwise, which can add up to big gains in the long run.

But not all stocks whose dividends have fallen recently are wise buys. In fact, many will waste your money and dash your hopes for passive income. Therefore, we will introduce an example of a dangerous dividend stock that should be avoided, and an example of a stock that is suitable for long-term holding.

Avoid medical property trusts

shares of Medical Property Trust (MPW 0.61%), a healthcare real estate investment trust (REIT) whose stock price has fallen 76% over the past three years. This is a big reason why the company’s future dividend yield is over 27%. Importantly, this is not a stock to buy on the spur of the moment to capture its extraordinary yield. This is something to consider as a lesson on what to watch out for and what to avoid.

In a nutshell, Medical Properties Trust buys medical facilities and rents them out to its tenants, some of whom are investors. There are many things that can go wrong in that process.

If you borrow too much when purchasing a property, your interest costs can become unsustainably high compared to your income. The company’s debt burden currently exceeds $10 billion, or 122% of its equity. In 2026, he will need to pay off nearly $3 billion in debt. He currently has only $340 million in cash on hand, and his trailing 12-month net loss is $33 million.

If a tenant runs into problems, it can be difficult to pay rent on time. Steward Healthcare, one of the REIT’s largest tenants and responsible for approximately 20% of its revenue as of the third quarter, has been chronically unable to pay its monthly rent in full and is behind on payments worth $50 million. are doing. The company plans to write off hundreds of millions of rent receivables in its fourth quarter earnings report. That’s a bad sign.

Finally, if it can’t generate enough cash to pay investors, it will likely have to cut its dividend again. We have significantly reduced payments in 2023, but further reductions are possible. I don’t see any hope. This business may not be able to recover from the downward spiral, as resources are severely limited and can hardly cope with the surge in demand for hospital floor space. Please don’t buy this stock.

Consider acquiring Pfizer

pfizer‘s (PFE -1.32%) The story is somewhat the opposite of Medical Properties Trust. The company’s stock price soared due to the development and sale of the Komilnati vaccine and Paxlobid antiviral drug for the prevention and treatment of coronavirus infections. However, the company’s temporarily inflated sales are shrinking from their peak of over $100 billion in 2022.

Essentially, Pfizer became a victim of its own success and was almost certain to struggle to grow as competition for tools to fight the pandemic waned.

Pfizer’s futures yield is currently 6.1%, and the coronavirus windfall is rapidly diminishing. Nevertheless, the company’s trailing 12-month sales of $68.5 billion are still far higher than its pre-pandemic 2019 sales of $40.9 billion. Management plans to significantly increase that amount over the next year by expanding competition in oncology. Over 6 years.

The first phase of planning has already begun. Pfizer recently acquired Seegen, a biotechnology company developing antibody-drug conjugate (ADC) drugs for various cancers, and the company plans to acquire more companies as well as increase spending on research and development. The company aims to expand the production capacity of its pipeline.

Scaling up means increasing your opportunities for long-term growth. The company already has 31 programs in Phase 3 clinical trials, and 34 more in Phase 2 clinical trials, so investors believe the company will continue to grow for at least the next six to eight years, and possibly beyond. You can be confident that we have a strong roadmap to realizing dividends.

The dividend payout ratio is currently relatively high at 89% of annual profits, but once the company gets back on track for growth, the situation will improve and Pfizer will have room to raise its payout again. Pfizer stock is a great opportunity, especially for investors who want to buy the stock now, when prices are low, and hold it for the long term (while receiving steady cash flow).