Underperforming High-Dividend Share with Over 15% Decrease, Worthy for Long-term Investment and Reliable Income Stream Over Extended Periods
Underperforming High-Dividend Share with Over 15% Decrease, Worthy for Long-term Investment and Reliable Income Stream Over Extended Periods
W.P. Carey (WPC) currently dips over 15% below its yearly peak. The drop in its stock price is a significant factor contributing to its dividend yield surpassing 6%, a figure that far outmatches the S&P 500's dividend yield, currently hovering close to a 20-year low at 1.2%.
This diverse REIT's high-yielding dividend is expected to steadily escalate in the coming years, making it an attractive buy and hold option for passive income over the long term.
Rebuilding its base
Over the past year, W.P. Carey has experienced significant changes. The organization made the strategic choice to leave the office sector towards the end of last year, subsequently selling or disposing of its entire office portfolio. Moreover, one of its major tenants exercised its option to purchase a collection of self-storage properties they had leased from the REIT.
Consequently, the company reduced its dividend last year due to reduced income and a preference for a more conservative dividend payout ratio. This move ended a 25-year streak of uninterrupted dividend growth.
Post these adjustments, W.P. Carey now boasts a significantly stronger foundation. The sale of assets has bolstered its financial health. The company ended the third quarter with a 5.4 debt-to-equity ratio, well below its target in the mid-to-high 5s. The lower dividend payout ratio allows for more capital retention, which in turn, funds new investments. As a result, the company now exhibits a more financially conservative posture with enhanced stability for its high-yielding dividend.
Rebuilding with improvement
The REIT has begun to rebuild its portfolio by acquiring properties with more robust long-term fundamentals than the office sector, such as the industrial real estate sector. The company invested $971.4 million in new properties by the end of October. For example, it bought a 19-property portfolio of industrial and warehouse properties in the U.S. and Canada for $191 million. The portfolio boasts an average remaining lease term of 13 years, with leases escalating at either a fixed rate in Canada or one tied to inflation in the United States. The company also completed a $52 million sale-leaseback deal for five industrial and warehouse properties in Italy and Canada. The leases feature a 25-year term with rent escalations at a fixed rate in Canada and an inflation-linked rate in Italy.
As of current, W.P. Carey owns over 1,400 properties that are net leased to high-quality tenants, with a weighted average lease term of 12.2 years. Sixty-five percent of its portfolio consists of industrial or warehouse properties, with 22% retail, and 15% other properties. Further, 53% of its leases are tied to inflation, while another 43% increase at a fixed rate. As a result, the REIT's existing portfolio is anticipated to generate steadily increasing rental income, as rents expanded at a 2.8% annualized rate in the third quarter.
The company aims to continue acquiring properties secured by long-term net leases with built-in rent growth. Its near-term deal pipeline involves $500 million in potential new investments, putting the company on track to meet or surpass its $1.5 billion investment volume objective for 2024. Moreover, the company has additional resources to fund new acquisitions in 2025 and beyond, enabling it to grow its adjusted funds from operations (FFO) at a healthy rate in the future.
W.P. Carey's growing FFO should support a consistently escalating dividend. The REIT has boosted its payment three times since the reset late last year.
In view of its financial improvements, potentially investing in W.P. Carey's shares could be a wise choice for those seeking dividend income, as the company's dividend payout is expected to increase due to its increased income and conservative payout ratio.
To further bolster its financial position and dividend prospects, W.P. Carey is strategically investing in properties with robust long-term fundamentals, such as industrial real estate, which can provide steady rental income due to long lease terms and built-in rent growth.