2 Beaten-Down Dividend Stocks With Ultra-High Yields Above 9%: Are They Bargains Now?

The benchmark S&P 500 index is up about 16% this year, but that doesn't mean all stocks are rising. Shares of Walgreens Boots Alliance (NASDAQ: WBA) and Medical Properties Trust (NYSE: MPW) are down by more than half over the past 12 months.

After falling a long way, Walgreens offers an eye-popping yield above 9% at recent prices. The yield you could receive from Medical Properties Trust is even higher.

On the one hand, these stocks could deliver huge gains for patient investors by simply maintaining their ultra-high-yield payouts. On the other hand, unfortunately, their prices wouldn't be under so much pressure if investors felt confident about their profitability.

Here's a closer look to see if these beaten-down dividend payers could be underappreciated bargains.

1. Walgreens Boots Alliance

Shares of Walgreens Boots Alliance last reached an all-time high in 2015, and the stock is down about 89% from its peak. The company had a streak of 47 consecutive years with annual dividend raises until this January, when it slashed the quarterly payment nearly in half to $0.25 per share.

Investors who worried that one dividend cut wouldn't be enough hammered the stock price so low that it offers a 9.3% yield at recent prices.

Walgreens still operates the largest chain of retail pharmacies, with about 8,700 in the U.S. and thousands more abroad. Its enormous size is an advantage for the pharmacy chain when it comes to sourcing prescription drugs and consumer goods. Unfortunately, pharmacy benefit managers ( PBMs ) that dictate how much reimbursement pharmacies receive when they fill prescriptions are eroding this advantage.

The three largest PBMs are also owned by insurers: CVS Health , UnitedHealth Group , and Cigna . None of these businesses are obligated to ensure Walgreens can turn a profit when it fills prescriptions. Moreover, all three also manage their own mail-order pharmacies, so there's a strong financial incentive to turn patients away from Walgreens and other retail outlets.

When the company reported fiscal third-quarter results in June, it had to lower earnings guidance for the year to reflect what it called "pharmacy industry trends" caused by PBMs. The stock's recent price is less than four times management's adjusted earnings estimate for the fiscal year that ends in August.

On the one hand, Walgreens stock could produce huge gains if earnings stop falling. Then again, the stranglehold the consolidated PBM industry has on retail pharmacies isn't likely to subside anytime soon.

The Federal Trade Commission (FTC) is preparing to sue CVS Health, UnitedHealth Group, and Cigna over their drug pricing practices, but success doesn't seem likely. It's probably best to avoid investing in independent pharmacy chains like Walgreens unless the FTC's suit against the three big PBMs succeeds.

2. Medical Properties Trust

As its name implies, Medical Properties Trust is a real estate investment trust ( REIT ) that specializes in medical properties. At the end of March, its portfolio contained 436 of them. Most are hospitals and acute-care clinics spread throughout the U.S. and abroad.

Medical Properties' portfolio collects rent from 53 different operators. The REIT typically gets them to sign net leases that transfer all the variable costs associated with building ownership, such as taxes and maintenance, to the tenant.

This REIT's net-lease operation produces hyper-reliable cash flows as long as its tenants can pay their rent. The stock is more than 80% below the all-time high it set in 2022 because its most important tenant, Steward Health Care, is a hot mess. This July, the Department of Justice launched a criminal investigation of Steward a couple of months after the company filed for Chapter 11 bankruptcy protection.

At the end of March, Steward held keys to 18.6% of Medical Property Trust's total assets, but the failing operator only contributed 3.9% of revenue. As a result, the REIT is selling properties that Steward doesn't rent to make ends meet.

Medical Properties slashed its dividend by 48% last year. The stock price has fallen, too, and at recent prices, it offers an enormous 12.8% dividend yield.

This stock could produce market-beating gains if it simply maintains its dividend payout at present levels. With a shrinking portfolio of properties to collect rent from, though, another dividend cut seems more likely than a speedy recovery.

Cory Renauer has positions in CVS Health. The Motley Fool recommends CVS Health and UnitedHealth Group. The Motley Fool has a disclosure policy .