The market is trading near all-time highs (which feels great), but don't forget the brief bear market that we saw earlier in 2020. As the old Wall Street saying goes, trees don't grow to the sky, and neither do markets. Eventually, there will be another market crash, and now is the time to prepare for it if you are starting to get worried about the market's lofty heights.
One of the best ways to prepare is buying an income-producing investment like W.P. Carey (WPC 0.16%). Here's why.
Dividends ease the pain
W.P. Carey is a real estate investment trust (REIT) that has increased its dividend annually for 23 consecutive years. That's no small achievement, and it shows that the REIT places shareholders' interests high on the priority list, especially given that there have been three notable market downturns over that span (the 2000 dot com bubble, the 2008-09 recession, and the drop in early 2020). That doesn't guarantee that W.P. Carey will always increase its dividend, but it has clearly managed through difficult times before.
Image source: Getty Images
Meanwhile, the REIT offers a generous 5.8% dividend yield today. That's roughly three times more than you'd get from an investment in the S&P 500 Index, which yields around 1.9%. This is important because when the market is falling hard and fast, dividend investors can ignore the broader stock market -- and even the prices of the stocks they own -- and focus on the income their portfolios generate. It's a way to lessen the emotional pain that a falling market can create.
However, there are a lot of dividend-paying stocks out there. Some even have higher yields, and equally impressive histories when it comes to dividend increases. So why pick W.P. Carey?
A differentiated business model
The key is diversification. Investors have long been told diversification is good for their portfolios. Well, it can be good for businesses to spread their bets around too, and W.P. Carey does this in a way that few other REITs can mimic. To put some numbers on that, the company's portfolio is spread across the industrial (24% of rents), office (23%), warehouse (22%), retail (17%), self-storage (5%), and other (the rest) property types. That's more diversification than the vast majority of REITs offer, with many specifically choosing to focus on just one sector.
W.P. Carey doesn't stop there, however. It also generates around a third of its rents from Europe. So not only is the REIT widely diversified by sector, it also has a material amount of geographic diversification as well. In the end, it's one of the most diversified REITs an investor can own. This also plays into the company's long-standing investment approach, which is all about being opportunistic. Effectively, with so many different property types and countries to look at, it can usually find some place to put money to work so it can keep growing its business even when times are tough. Even today, when many REITs are reeling, W.P. Carey is looking to invest in the industrial sector. That area of the property space has been holding up relatively well, and still offers opportunities as companies look to raise cash to shore up their balance sheets.
The proof of the pudding, however, is in the eating. When other REITs were struggling to collect rent from tenants, W.P. Carey sailed right along, comparatively speaking. For example, industry bellwether Realty Income (O 0.11%), which like W.P. Carey is a net-lease REIT (tenants pay for most of the costs of the properties they occupy), collected 87% of its April rents, versus 97% for W.P. Carey. Those were both better numbers than the roughly 50% collection rate that fellow industry bellwether National Retail Properties managed.
|
Rent Collection in the Second Quarter of 2020 |
|||
|---|---|---|---|
|
April |
May |
June |
|
|
W.P. Carey |
97% |
96% |
98% |
|
Realty Income |
86.9% |
83.5% |
85.7% |
Data source: Company releases
For all of the second quarter, meanwhile, Realty Income collected roughly 85.5% of its rents, with a June collection rate of 86%. W.P. Carey collected 96% of its rent in the second quarter, with a June collection rate of 98%. Clearly, W.P. Carey is doing something right, and a lot of that is related to its diversified portfolio approach.
Spread your income bets
If you are worried about the level of the market today and fearing that another crash is on the way, then you need to take a look at W.P. Carey. It won't save you from a market plunge, but it will provide you with income while you wait for the market to recover -- keeping you in the market instead of running for cover.
Equally important, W.P. Carey has proven that even in the face of a severe industry downturn, its diversified business model can thrive. While others are focusing on bad news, you'll be able to watch your dividend payments roll in and, if history is a guide, see that W.P. Carey's portfolio continues to sail along in stride.
