Please ensure Javascript is enabled for purposes of website accessibility

2 Top Dividend Stocks for a Better Retirement

By Reuben Gregg Brewer - Feb 5, 2021 at 7:15AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Looking for a high-yield stock to add income to your retirement portfolio? These two landlords should be high up on your list.

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.

With that investing strategy in mind, W.P. Carey (WPC 0.48%) and Spirit Realty (SRC 2.09%) could make for good high-yield additions to any retirement portfolio.

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. 

A man in a suite shooting hundred dollar bills off of a pile in his hand.

Image source: Getty Images.

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 (O 1.08%) 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.  

WPC Dividend Yield Chart

WPC Dividend Yield data by YCharts

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. 

Uncertain times

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

W. P. Carey Inc. Stock Quote
W. P. Carey Inc.
WPC
$83.14 (0.48%) $0.40
Realty Income Corporation Stock Quote
Realty Income Corporation
O
$69.18 (1.08%) $0.74
Spirit Realty Capital, Inc. Stock Quote
Spirit Realty Capital, Inc.
SRC
$41.53 (2.09%) $0.85

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
322%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.