Uncovering Hidden Gems: A Top-Notch REIT Worth Buying and Holding
High-yielding dividend stocks can be a rare find, especially when they’re backed by a solid business model. However, one often overlooked gem is W.P. Carey, a real estate investment trust (REIT) that has faced challenges in the past but is now poised for long-term success.
A Brief History of W.P. Carey
W.P. Carey, a highly regarded REIT, encountered difficulties after the pandemic, leading to a dividend cut. The stock has since plummeted nearly 40% from its high. But, despite this setback, the company remains a top-notch REIT worth considering.
The Diversification Advantage
W.P. Carey’s strength lies in its diversification. With a portfolio of approximately 1,430 properties, leased to 346 tenants, the company is well-insulated from unexpected costs. Its focus on single-tenant commercial properties, using net leases, further reduces risks. Additionally, its self-storage portfolio and global presence, with properties divided roughly 2-to-1 between North America and Europe, provide a stable foundation.
The Dividend Cut: A Necessary Adjustment
The dividend cut was a necessary response to the pandemic’s impact on W.P. Carey’s office properties, which accounted for 16% of its rental income. However, management has since resumed dividend increases, and analysts expect the company to grow its funds from operations (FFO) at a low to mid-single-digit rate over the next few years.
Why the Stock is Down
The current stock price is largely influenced by interest rates rather than concerns about W.P. Carey’s dividend safety. The 10-year U.S. Treasury rate has a significant impact on REITs, making borrowing more expensive and reducing their attractiveness to investors. However, rates fluctuate over time, and patient investors can benefit from W.P. Carey’s generous dividend yield while waiting for the market to recover.
A Proven Track Record
W.P. Carey has a long history of dividend payments, having raised its dividend for over two decades, including through the 2008-2009 financial crisis. The company can comfortably afford its current dividend, with a payout ratio of only 76% of its estimated FFO per share.
A Compelling Investment Opportunity
Despite the recent dividend cut, W.P. Carey remains a well-diversified REIT that can add significant income to any investor’s portfolio. With its proven track record, remarkable diversity, and potential for long-term growth, W.P. Carey is an attractive option for those seeking a reliable high-yield stock.
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