A lot changes when you shift from working to retirement, including how you invest. Most investors switch from building a nest egg to living off what they have managed to squirrel away. If the investors' portfolio includes dividend stocks, their holdings can help "make ends meet" in retirement without the need to sell assets.
The basic model
Both W.P. Carey and Spirit Realty are real estate investment trusts (REITs), a corporate structure whose purpose is to throw cash off to investors. REITs push 90% of earnings to investors in the form of dividends in exchange for avoiding corporate-level taxation. Investors pay tax on the income at their personal income tax rate. However, if you put a high-yield REIT into a Roth IRA, that income becomes tax-free. So far, so good.
These two REITs both operate in the net-lease sector. That means that they own their properties, but their tenants are responsible for most of the operating costs of the assets they occupy. Why would anyone agree to that? Because net-lease deals are generally sale/leaseback arrangements in which the seller is looking to raise cash (perhaps for growth spending or debt reduction) but doesn't want to lose access to a vital property. So it sells the asset and instantly signs a long-term lease, often with built-in rent escalators.
W.P. Carey and Spirit Realty can expand their portfolios with long-term tenants already in place. It's a win/win.
A deeper look
With that background, why W.P. Carey and Spirit Realty? There are plenty of other options in the net-lease space.
Dividend yield is the top-level plus here. W.P. Carey's dividend yield today is roughly 6.3%, over three times what you'd get from an S&P 500 Index fund. Spirit Realty's yield is slightly higher at 6.5%. For comparison, net-lease industry bellwether Realty Income (NYSE:O) offers a 4.7% yield right now. If you are looking to maximize your income stream, W.P. Carey and Spirit Realty have a dividend edge.
That said, of the two, W.P. Carey has a longer and much more impressive dividend track record. The REIT has increased its dividend every year since it went public in 1998. Its highly diversified portfolio is purposefully light on retail properties, which make up just 17% of the rent roll. The rest comes from industrial (24% of rents), warehouse (23%), office (23%), self storage (5%), and a fairly broad "other" category. Around 37% of the company's revenue is derived from outside the United States, largely from Europe. This diversification has been a huge benefit during the pandemic, with the worst month of rent collections being May 2020 at an impressive 96%. The REIT essentially performed as if there weren't a global health scare. Dividend investors looking for a one-stop shop would do well to look at this high-yield REIT.
Spirit hasn't been public as long, and revamped its portfolio in a big way in 2018 via a spinoff of some troubled assets. That move was accompanied by a dividend cut and a reverse stock split. The dividend hasn't been increased since the cut, as management wants to get back to growth again. Another difference is that this REIT's portfolio leans heavily toward retail, which makes up a hefty 80% of its rents, with industrial (13% of rents) and office (7%) rounding things out to 100%. That's fairly similar to Realty Income's portfolio breakdown.
Spirit Realty didn't perform nearly as well as W.P. Carey during the worst of the downturn, with rent collections dipping below 70% early on in the pandemic. However, that number is back over 90% at this point. And the REIT continues to invest in assets to grow its business over the long term. Basically, it has muddled through the downturn and come out in one piece. The yield advantage over Realty Income is the key, given the similarity of their portfolios. For more aggressive investors willing to bet that retail is still a vital property class, high-yield Spirit Realty is worth a closer look if you want to generate as much income as possible from your portfolio.
Here's the thing: W.P. Carey and Spirit Realty are, at their core, pretty boring real estate companies that throw off a lot of dividend income. With the stock market near record highs and unsettling trends, like short squeezes, taking shape, focusing on dividends and not on the market could be an important emotional salve for retired investors. If that sounds good to you, collecting fat dividend checks from this pair could be a great call right now.