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Want a Dividend You Can Trust? Try W.P. Carey

By Reuben Gregg Brewer – Sep 23, 2020 at 7:08AM

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When things got tough, W.P. Carey's business model shined even as the models of other landlords started to crumble.

W.P. Carey (WPC -4.39%) has done something very special this year by increasing its dividend each and every quarter. While there are no guarantees about the future, this real estate investment trust (REIT) is proving during one of the worst market environments in recent memory that investors can trust its dividend. Here's what you need to know about this dividend stalwart. 

The basics

W.P. Carey's core business is owning single-tenant properties. The real estate investment trust uses a net-lease model, which means that its lessees are responsible for most of the operating costs of the properties they occupy. This is generally considered a low-risk operating model, and one that many landlords use. However, the COVID-19-driven recession has demonstrated the strength of W.P. Carey, which takes a slightly different approach to the space.

A man writing the word dividends

Image source: Getty Images

The REIT's quarterly dividend increases are just one sign of strength, but it's worth noting that many other landlords have been forced to trim their dividends this year. More important is W.P. Carey's impressive rent collection rates. While some net-lease peers were having trouble collecting even half of their rent rolls, W.P. Carey's rent collection hit its nadir in May at 96%. That's barely a blip. By August, rent collections were up to 98%. 

In one of the worst real estate situations in recent memory, W.P. Carey shined. Here are the three reasons why, which help to explain why dividend investors can trust in this REIT's dividend checks.

1. It's diversified

You know that diversification is good for your investment portfolio -- well, it's also good for a company's business. W.P. Carey diversifies in two ways. First, its properties are spread across several sectors: industrial (24% of rents), office (23%), warehouse (22%), retail (17%), and self storage (5%), with a fairly notable "other" segment rounding out the portfolio. No one segment of its portfolio will have too large an impact on overall performance. 

But that's not the only way W.P. Carey is diversified. It also generates around 37% of its rents from outside of the United States. While some of that is in Canada, the vast majority (35%) is from properties located in Europe. While other net-lease REITs may spread their bets across different sectors, W.P. Carey's country-level diversification makes it one of the most diversified businesses you can own in the real estate space. 

2. It's opportunistic

This plays into another key focus for W.P. Carey, as one of management's key goals is to put money to work only where it thinks there are good opportunities. One manifestation of this is the portfolio's modest exposure to retail assets, most of which are in Europe. Simply put, W.P. Carey has long believed that the U.S. retail sector is overbuilt, and acted on that by investing in other places that it viewed as more attractive. That saved investors a lot of pain during the global pandemic. This wouldn't be as easy to do if W.P. Carey didn't have a widely diversified portfolio.

Today, W.P. Carey is looking at the industrial and warehouse spaces. Effectively, it is hoping to take advantage of companies that need to raise cash, buying their properties directly and then instantly signing long-term leases with them. 

And that brings up point three.

3. It self-originates

Another important factor in W.P. Carey's success is that it prefers to originate its own deals. That means it gets deeper access to the finances of the companies that will eventually be occupying its properties, and it gets to dictate the terms of its leases. Both help W.P. Carey protect itself, since it gets to fully vet its potential lessees and can make sure there are protective lease covenants in place that it wouldn't be able to demand if it bought pre-existing net-lease assets. Combined with the diversification and opportunistic investing, this hands-on approach with tenants rounds out a very strong business model.

Still worth a deep dive

While W.P. Carey, like many other REITs, has seen its share price rise off the bear market lows earlier in 2020, it still offers a generous 6.6% dividend yield at Tuesday's closing price. If you're a long-term investor looking for a dividend-paying company with an impressive history of rewarding investors (W.P. Carey has increased its dividend annually for 23 years and counting), this differentiated REIT is one you should probably get to know very well. 

Reuben Gregg Brewer owns shares of W. P. Carey. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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