The Federal Reserve is now walking a tightrope, trying to strike a balance between ever-rising inflation and sluggish economic growth. In March 2022, the US consumer price index (CPI, a measure of inflation) rose 8.5% year-on-year, the highest it has been in the last 40 years.
Chicago Federal Reserve Bank President Charles Evans now believes the central bank may need to raise interest rates above the neutral rate — the rate at which the economy is neither stimulated nor constrained. However, several other members of the Federal Open Market Committee believe the Federal Reserve needs to raise interest rates above the neutral rate, which may dampen economic growth.
This is a challenging time for growth stocks, which have been stock market darlings for a number of years. Instead, retail investors will be better off focusing on high-yield stocks that offer some protection from rising inflation. Individual investors will earn around $3,300 in dividend income over the next five years by investing $5,000 at a time Medicinal Properties Trust (NYSE:MPW) and Sunoco LP (NYSE: SUN).
Therefore, these two high-yield stocks could prove attractive stocks in April 2022.
1. Medical Properties Trust
Medical Properties Trust is a real estate investment trust (REIT) that currently owns approximately 440 healthcare facilities – including general acute care hospitals, behavioral health facilities, inpatient rehabilitation clinics, long-term acute care hospitals and emergency care facilities – spread across nine countries worldwide. The Company derives most of its revenue from long-term leases of these properties to healthcare companies. Medical Properties also generates a portion of its revenue by offering secured real estate loans to these operators.
Medical Properties pays a handsome dividend yield of 5.75%. For fiscal 2021 (ended December 31, 2021), the company’s annual dividend of $1.12 per share was well supported by its free funds from operations (FFO) per share (a metric used to assess a REIT’s profitability) of 1, $80.
As one of the largest private hospital owners in the world, Medical Properties could prove to be a very attractive defensive stock in the current inflationary environment, as over 99% of its leases include annual rent increases based on CPI. The majority of these leases are also net leases, meaning the tenants bear all ongoing operating and maintenance costs associated with the facility.
The weighted average remaining term of the rental agreements at the end of the 2021 financial year was almost 17.8 years, which will ensure significant revenue transparency in the years to come. Finally, unlike most other healthcare REITs, which have focused on highly competitive areas like senior housing and doctor’s offices, Medical Properties has chosen to play in the less competitive hospital space — allowing for faster asset base growth and improved finances.
In fiscal 2021, the U.S. market accounted for $1.0 billion, or nearly 65% of Medical Properties’ total revenue. With total assets in excess of $20.5 billion, the Company remains significant potential for organic or inorganic expansion into between $500 billion and $750 billion in operator-owned real estate in the United States
The Medical Properties business is highly diversified in terms of property types, operator types and geographies. Still, the company currently trades at just 14.36 times adjusted operating funds (AFFO), which is well below the industry median of 19.74 times AFFO.
Given a large addressable market opportunity, a solid business model, robust and secure dividend payments, and a reasonable valuation, Medical Properties could prove to be a solid pick in 2022.
2. Sunoco LP
The largest independent fuel distributor in the U.S., Sunoco LP, sold 7.5 billion gallons of fuel products in fiscal 2021 (ending December 31, 2021), up 6.4% year over year. This Master Limited Partnership (MLP) currently looks after around 7,300 dealers, fuel distributors and commission agents as well as around 2,500 commercial customers.
Sunoco has built a robust midstream infrastructure portfolio with terminals and storage facilities strategically located near its fuel distribution operations. This ensures optimal wholesale distribution. Thanks to its wide wholesale distribution network and brand strength.
Sunoco currently offers a dividend yield of 7.69%. Though the company hasn’t increased its dividend per share in the last five years, the payout ratio is a reasonable 62.50%. The company reported a funded ratio of 1.6 for fiscal 2021, which is above the minimum target funded ratio of 1.4. Sunoco’s leverage ratio was 4.17 times as of the end of fiscal 2021, fairly close to its long-term target of 4.0. These metrics imply that the company’s distributions are pretty safe for the foreseeable future.
Despite the uncertainty surrounding the global demand recovery, Sunoco has forecast robust fuel volumes (7.7 to 8.1 billion gallons) and high fuel margins (10.5% to 11.5%) for fiscal 2022. Demand for conventional motor fuels will remain strong for even a few more years if we assume rapid adoption of electric vehicles around the world. According to Bloomberg New Energy Finance, electric vehicles will account for around 44% of the total vehicle fleet in the US in a high growth scenario by 2040.
While Sunoco isn’t a high-growth company, it’s already a profitable company. With share prices up just 5.07% so far this year, it could prove an attractive entry point for retail investors to add to this safe, high-yield stock in 2022.
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Manali Bhade has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.