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The Best Real Estate Investment for 2019

By Reuben Gregg Brewer - Updated Apr 25, 2019 at 12:50AM

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This REIT has a high yield, options for growth, and some built-in protection from rising rates, which makes it a real estate best buy for 2019.

Every investor would love to find the "perfect" investment, but those just don't exist -- or at least they don't show up very often. The next best option is to buy a stock that has multiple paths to a positive outcome, which is exactly what real estate investment trust, or REIT, W.P. Carey Inc. (WPC -0.52%) offers investors. That's why it's a best-buy real estate investment for 2019.

Here's what you need to know to decide if this high-yield REIT belongs in your portfolio.

What it does

W.P. Carey is a triple-net-lease REIT, which means its tenants are responsible for paying most of the operating costs of the properties they occupy, including things like maintenance and taxes. Very often, Carey buys properties directly from a company and then instantly leases them back to the same company under long-term leases.

This might seem like an odd move, but it's a win-win here. The tenant gets cash that it can use to invest in its business or pay down debt while Carey gets a new building with a loyal tenant. Carey makes the difference between its financing costs and the rates it charges the tenant. It's a fairly low-risk business model.

A piggy bank with the word DIVIDENDS written above it.

Image source: Getty Images.

Today, Carey offers investors a yield of 5.6%. That's well above peers like Realty Income (O -0.45%) and National Retail Properties (NNN 0.09%), which are industry bellwethers but only offer yields of 4.1% and 3.8%, respectively. To be fair, these two REITs have longer histories of annual dividend hikes, at 26 years and 29 years, respectively, but Carey's streak is still pretty impressive at 22 years -- or every year since it went public in 1998. So not only does the company have a high yield compared to its peers, but it can really stand toe-to-toe with the industry leaders when it comes to rewarding investors over time.

Some specifics

But there's more to like about Carey than just its yield. For example, the REIT is one of the most diversified options available in the space. While many triple-net-lease REITs, including Realty Income and National Retail Properties, are heavily focused on retail assets, Carey spreads its bets around. Its portfolio breakdown is industrial (24% of rents), warehouse (20%), office (25%), retail (19%), and self-storage and other (the remainder).

WPC Dividend Yield (TTM) Chart

WPC Dividend Yield (TTM) data by YCharts.

The breakdown here is purposeful but changes over time as Carey tends to be an active portfolio manager. It likes to focus on the areas where it's finding the best deals. Having broad diversification gives it more levers to pull to keep the portfolio growing -- which brings up the fact that retail is such a low percentage of the mix.

What's even more interesting is that most of the company's retail exposure is in Europe, which doesn't have as much retail property per resident as the United States. Carey believes there's simply better opportunities in retail outside the heavily retailed U.S. market.

But this is just the tip of the iceberg because foreign assets make up roughly 38% of the portfolio (mostly Europe, which is 35%). But the foreign exposure is broad-based across every sector in which Carey operates, giving it yet another way to find good deals.

Carey offers a relatively high yield and has multiple avenues to continue growing its business. But there's one more thing to like here: 65% of its portfolio has contractual rent increases tied to inflation. In other words, if inflation kicks up a notch, most of Carey's rent roll will head higher with it. So not only do investors get that high yield, but there's built-in protection against the impact of inflation over time -- another win for investors.

WPC Dividend Per Share (Quarterly) Chart

WPC Dividend Per Share (Quarterly) data by YCharts.

You should also add to this list of positives a payout ratio of approximately 75%. That leaves plenty of room for future dividend increases and provides some protection for the current dividend should the company face a tough time. With long-term leases, however, occupancy has historically been in the high 90% range, even during the deep 2007 to 2009 recession. In other words, Carey has a history of surviving downturns in stride.

A top buy for 2019

Once you get some backstory here, Carey quickly starts to look like a pretty desirable investment option. There are real estate stocks with higher yields. There are companies with more readily recognizable names. But when you put all the pieces together, you can see why W.P. Carey, a name you may not know off the top of your head, really deserves a spot at the the top of your real estate buy list in 2019.

Check out the latest W.P. Carey, Realty Income, and National Retail Properties earnings call transcripts.

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Stocks Mentioned

National Retail Properties, Inc. Stock Quote
National Retail Properties, Inc.
$44.16 (0.09%) $0.04
Realty Income Corporation Stock Quote
Realty Income Corporation
$69.13 (-0.45%) $0.31
W. P. Carey Inc. Stock Quote
W. P. Carey Inc.
$86.12 (-0.52%) $0.45

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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