When it comes to investing, chasing losses can be a dangerous game. Just as professional gamblers warn against the temptation to recoup losses quickly, investors should exercise caution when trying to recover from a stock’s decline. This is especially true for real estate investment trusts (REITs) like Medical Properties Trust (NYSE: MPW). While MPW may seem attractive to retail investors due to its high yield, the stock has lost a significant amount of value and faces numerous challenges. In this article, we will explore two alternative stocks that offer better investment opportunities: Vici Properties (NYSE: VICI) and Booking Holdings (NASDAQ: BKNG).
The Risks of Medical Properties Trust
Medical Properties Trust has been a favorite among retail investors, thanks in part to its high yield, currently at almost 18%. However, it’s important to note that stocks with high yields often come with increased risk. In the case of MPW, the stock has lost 75% of its value since the beginning of 2022, even when factoring in the substantial yield. This decline is indicative of the company’s underlying issues.
One of the major concerns with MPW is its heavy reliance on a few tenants, making it vulnerable to any financial difficulties they may face. Additionally, the company has a major tenant with financial issues, further exacerbating its risk profile. To address its financial challenges, MPW has had to sell off assets to service its debt, which can have a negative impact on its long-term prospects. Furthermore, the company recently cut its dividend by nearly half, eroding one of the key attractions for investors.
Vici Properties: A Stronger Dividend Option
For investors looking for a more reliable dividend option, Vici Properties presents a compelling opportunity. As a real estate investment trust, Vici specializes in owning and managing properties, including famous locations like Caesars Palace and MGM Grand on the Las Vegas Strip. The company also owns other well-known properties, such as Chelsea Piers in New York, and holds a diverse portfolio of 92 properties across 26 states and one Canadian province.
One of the advantages of investing in Vici is the consistent revenue it generates, even during economic challenges. The company collected 100% of rents, even when many casinos were closed during the pandemic in 2020. Vici’s lease agreements with tenants are long-term, with an average duration of 42 years, which provides stability and reduces concerns about occupancy rates. Additionally, most of Vici’s leases are tied to inflation, ensuring that rental income increases along with the consumer price index (CPI). This inflation protection is crucial for maintaining a growing dividend for investors.
Unlike MPW, Vici Properties is not selling off assets to manage its financial obligations. Instead, the company is actively pursuing expansion opportunities outside of the gaming industry. This diversification strategy includes investments in golf resorts, bowling alleys, lodging, and international markets. By expanding its revenue streams, Vici enhances its ability to continue delivering industry-leading dividend growth. With a current yield of over 5% and a strong track record of dividend increases since its inception in 2018, Vici is a compelling option for income-focused investors.
Booking Holdings: A Profitable Alternative
While dividend investing is a popular strategy, some investors may prefer to diversify their portfolios with growth-focused stocks. Booking Holdings, the world’s largest online travel booking service, offers an attractive opportunity in this regard. As the parent company of brands like Booking.com, Priceline, KAYAK, and OpenTable, Booking Holdings dominates the online travel industry. The company also competes with Airbnb in the short-term rental market, focusing on rentals available through property managers rather than individual hosts.
Booking Holdings has a history of profitability and generates substantial free cash flow. Although the pandemic temporarily impacted its revenue and free cash flow, the company quickly rebounded to record levels. This resilience is a testament to Booking’s strong business model and ability to adapt to changing market conditions. With a robust 38% free cash flow margin, Booking has ample resources to invest in growth initiatives and reward shareholders.
One notable aspect of Booking’s business model is its capital-light nature. The company does not require significant capital expenditures (capex) for property and equipment, allowing it to generate substantial free cash flow. Booking’s capex expenditure as a percentage of revenue is relatively low, freeing up more cash for other purposes. Instead of paying dividends, Booking has chosen to prioritize stock repurchases, reducing the number of outstanding shares and increasing value for shareholders. Since January 2022, Booking has repurchased $14.5 billion worth of its own stock, resulting in a 13% reduction in shares outstanding.
While Booking’s price-to-earnings (P/E) ratio of 25 may seem high, it is justified by the company’s profitability, rising revenue, and exceptional free cash flow generation. Comparatively, Booking’s valuation is lower than that of Expedia (NASDAQ: EXPE) and higher than Airbnb. Nevertheless, investors should exercise caution and consider implementing dollar-cost averaging strategies, given the market’s near-record levels.
Investors seeking alternatives to Medical Properties Trust can find better opportunities in stocks like Vici Properties and Booking Holdings. Vici offers a stable dividend with a track record of growth, thanks to its diversified portfolio and long-term lease agreements. On the other hand, Booking provides growth potential through its dominance in the online travel industry and strong profitability. Both stocks present compelling options for investors looking to diversify their portfolios and generate returns. As always, it’s important to conduct thorough research and consult with a financial advisor before making any investment decisions.