January 5, 2024, marked another 29% plummet in the shares of Medical Properties Trust (NYSE:MPW), closing at $3.55. This dive compounded an already bleak performance over the past five years. Including $5.18 in cumulative dividends, if you held MPW shares from January 1, 2019, to January 5, 2024, your total return is a staggering -45.6%. And on a three-year basis (January 1, 2021 – January 5, 2024), the return is a whopping -61.1%. The five-year return is nothing short of disastrous at -69.7% (January 1, 2019 – January 5, 2024).

In 2022, there were a startling 82 articles on MPW. Among them, 70 were “strong buy” or “buy” articles, 10 were “hold” articles, and two were “sell” articles.

I was one of the authors who contributed to the MPW discussions, penning just a single article. In December 2022, I published my take titled “Medical Properties Trust, Inc.: Stop Reaching For Yield.” My article, to be candid, was bearish and cautionary. However, I must clarify that I rarely take a “sell” stance. It’s tricky to make thoughtful points when dealing with these ‘battleground stocks’—emotions run high, opinions are entrenched, and groupthink abounds. Unfortunately, cautionary voices often get lost amid the boldly touted attractiveness of dividend yields, with insufficient emphasis on the risks involved.

In the first half of 2023, there were 62 “buy” ratings, 12 “hold” ratings, and five “sell” ratings for MPW. This trend continued during the latter half of 2023 when, despite the clear downward trajectory of the stock, there were still 24 “buy” ratings, 25 “hold” ratings, and 10 “sell” ratings.

The burning question is: why were there over 200 articles written on MPW in 2022 and 2023? Is MPW developing a cure for cancer or pioneering the next AI breakthrough? Quite the contrary, so what’s the allure?

Comparing this to the S&P 500, which returned a solid 26.3% last year, and boasted a three-year annual yield of 10%, and a five-year annual yield of 15.7%—the attraction of MPW seems even more confounding.

In the upcoming weeks, we may witness a deluge of new MPW articles—some advising to ‘buy the dips’, while others attempt to rationalize the stock’s plummet, possibly resulting in permanent capital impairment for unsuspecting retirees, given MPW’s heavily leveraged balance sheet. The bearish case, as predicted by informed short sellers, has played out almost exactly as anticipated, starting from the $12 to $15 per share range.

Why the Craze for High-Yield Stocks?

Beyond MPW, the real question that retirees must ponder is: why are these high-yield dividend stock investing strategies so hyped? And crucially, do these strategies genuinely outperform the S&P 500 over one, three, or five years?

Possibly fueled by demographics, prolonged artificially low-interest rates by the Federal Reserve from 2009 to 2022, or shrewd marketing, a burgeoning industry emerged around 2020, advocating the creation of the perfect high-yield equities portfolio. The narrative, on the surface at least, was compelling, glorifying the seemingly untapped potential of the stock market. It was cherry-picking 7% to 10% yielding dividend stocks, supposedly offering consistent returns, while downplaying the inherent risks in these strategies.

Imagine this scenario: you’re in your late 50s or early 60s, with around $500K to $700K in investable capital, and you’re bombarded with these enticing marketing pitches. You may be contemplating early retirement, weathering the aftermath of a Covid-induced job purge, or simply eager to retire. Perhaps you’re already retired and occasionally fret about finances. Free of mortgage and car payments, your cost of living is moderate, but you might reside in a high-tax state or might be aiding your family. Amidst this, enters the allure of high-yield dividends, a supposed remedy for the unimpressive bond yields of 2019-2021.

The imagery painted is that of a Willy Wonka-esque Chocolate Factory, providing a bountiful basket of juicy 7% to 10% yielding dividend stocks, ripe for the picking—a mesmerizing prospect underwritten by seemingly sound security selection.