Jhe US Federal Reserve is now walking a tightrope trying to balance ever-rising inflation with sluggish economic growth. In March 2022, the US Consumer Price Index (CPI, a measure used to measure inflation) rose 8.5% year-over-year, the highest on record in 40 last years.
Chicago Federal Reserve Chairman Charles Evans now believes the central bank may need to raise interest rates above the neutral rate — the interest rate at which the economy is neither stimulated nor constrained. However, several other members of the Federal Open Market Committee believe that the Federal Reserve will have to raise interest rates above the neutral rate, which can stifle economic growth.
It’s a tough time for growth stocks, which have been the darlings of the stock markets for several years now. Instead, retail investors will be better off focusing on high-yielding stocks, which offer some degree of protection against rising inflation. Retail investors will earn approximately $3,300 in dividend income over the next five years by investing $5,000 each in Medical Properties Trust (NYSE:MPW) and Sunoco LP (NYSE: SUN).
Here’s why these two high-yielding stocks could prove to be attractive picks in April 2022.
1. Medical Properties Trust
Medical Properties Trust is a Real Estate Investment Trust (REIT) which currently owns approximately 440 healthcare facilities – including general acute care hospitals, behavioral health facilities, inpatient rehabilitation hospitals, nursing hospitals long-term acute and urgent care facilities – spread across nine countries globally. The Company derives the majority of its revenue by leasing these properties on a long-term basis to healthcare operating companies. Medical Properties also derives part of its revenue by offering secured home loans to these operators.
Medical Properties pays a handsome dividend yield of 5.75%. In fiscal 2021 (ended December 31, 2021), the company’s annual dividend per share of $1.12 was well covered by its free funds to operate (FFO) per share (a measure used to assess profitability of a REIT) 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 more than 99% of its leases include annual rent increases based on the CPI. The majority of these leases are also net leases, implying that the tenants assume all ongoing operating and maintenance expenses associated with the facility.
The weighted average remaining lease term was nearly 17.8 years at the end of fiscal 2021, which will provide significant revenue visibility in the years to come. Finally, unlike most other healthcare REITs that have chosen to focus on highly competitive areas such as seniors’ residences and medical office buildings, Medical Properties has chosen to play in the less competitive, allowing faster growth of the improved financial and asset base.
In fiscal 2021, the U.S. market accounted for $1.0 billion, or nearly 65% of Medical Properties’ total revenue. With a total asset portfolio worth over $20.5 billion, there is still significant potential for the company to grow organically or inorganically into $500-750 billion of real estate space. belonging to the operator in the United States.
Medical Properties’ business is very diverse in terms of property types, operator types and geographic areas. Yet the company currently trades at just 14.36 times adjusted funds from operations (AFFO), well below the industry median of 19.74 times AFFO.
Against the backdrop of a large addressable market opportunity, a solid business model, robust and secure dividend payouts and a reasonable valuation, Medical Properties could prove to be a reliable choice in 2022.
The largest independent fuel marketer in the United States, Sunoco LP, sold 7.5 billion gallons of petroleum products in fiscal year 2021 (ended December 31, 2021), an increase of 6.4% from one year to the next. This Master Limited Partnership (MLP) currently serves approximately 7,300 dealers, fuel distributors and commission customers, as well as approximately 2,500 commercial customers.
Sunoco has built a strong midstream infrastructure portfolio with terminals and storage facilities strategically located near its fuel distribution operations. This ensures optimal wholesale distribution operations. Thanks to its extensive wholesale distribution network and the power of its brand.
Sunoco currently offers a dividend yield of 7.69%. Although the company has not increased its dividend per share in the past five years, the payout ratio is at a reasonable 62.50%. The company reported a hedge ratio of 1.6x for fiscal 2021, which is above the minimum target hedge ratio of 1.4x. Sunoco’s leverage ratio was 4.17x at the end of fiscal 2021, fairly close to its long-term target of 4.0x. These measures imply that the company’s distributions are fairly secure for the foreseeable future.
Despite the uncertainty surrounding the global demand recovery, Sunoco forecast robust fuel volumes (7.7 to 8.1 billion gallons) and high fuel margins (10.5% to 11.5%) for fiscal year 2022. Demand for traditional automotive fuels will remain strong for several years to come, even if we assume rapid adoption of electric vehicles around the world. According to Bloomberg New Energy Finance, in a high-growth scenario, electric vehicles will represent about 44% of the total vehicle fleet in the United States in 2040.
Although not a high growth company, Sunoco is already a profitable business. With stock prices currently only up 5.07% so far this year, this could prove to be an attractive entry point for retail investors to stock up on safe, high-yielding stocks in 2022.
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Manali Bhade has no position in the stocks mentioned. The Motley Fool has no position in 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.