There's no such thing as a perfect stock, but W.P. Carey (WPC 0.94%) is one of those companies that has proven its mettle in good times and bad. If you are a dividend investor looking for a long-term holding, you need to do a deep dive on this real estate investment trust (REIT). Here are a few reasons why this landlord could help your dividend dreams come true.
1. A simple business
W.P. Carey is a real estate investment trust, but it specifically invests in net-lease assets. This is a unique niche of the property market in which an REIT owns properties, but its tenants are responsible for most of the upkeep costs. Lease lengths tend to be long, and there are usually automatic rent escalations built into the agreements. It's generally considered a low-risk approach in the broader REIT sector, with W.P. Carey making the difference between its cost of capital and the rents it charges.
While this may sound like a bad deal for a tenant to agree to, it really isn't. When W.P. Carey buys a property, it is basically providing the seller access to capital. The new lessee gets to keep using what is generally a vital property -- and because the lessee is paying for the upkeep, the property stays in top-notch shape. It's really a win/win transaction.
2. Proven and tested
The coronavirus pandemic is a great example of how well W.P. Carey has executed. While some of its peers were having trouble collecting rent in 2020, W.P. Carey's worst monthly collection rate was 96% in May. That's barely a blip, meaning it collected virtually all of its rents despite a global health scare.
But that's not the only trial that W.P. Carey has overcome. A few years back the company was considering breaking itself into three parts: a U.S.-focused REIT, a foreign-focused REIT (more on this below), and an asset management company. In the end, the board and the CEO at the time didn't see eye to eye on this plan, and the CEO was pushed out. The final game plan turned out to be much less drastic, with W.P. Carey simply winding down its asset management business. In other words, the company you see today is the one that the board thinks it should be -- which is reassuring, given that these are the people you get to vote for to protect your investment.
3. Diversification on top of diversification
You know that diversification is good for your portfolio, right? Well, it can be pretty good for a company's business, too. That's particularly true in the REIT space, since what W.P. Carey owns is basically a portfolio of properties. This landlord's portfolio is spread across the industrial (25%), office (23%), warehouse (22%), retail (18%), and self storage (5%) sectors, with a fairly large "other" category rounding things up to 100%. But that's not all -- it also generates about 39% of its rent roll from outside the United States, largely Europe, so it has geographic diversification, too. It's probably one of the most diversified REITs you can buy. This also plays into management's penchant for investing opportunistically, often when others are pulling back, since the company can put money to work across a broad spectrum of sectors and geographies.
4. Returning value to shareholders
Of course, you can't talk about a dividend dream stock without talking about dividends -- and W.P. Carey shines here, too. For starters, its 6.1% dividend yield is more than three times what you'd get from an S&P 500 Index fund right now, and significantly above the 3.9% yield of the average REIT, using the Vanguard Real Estate Index ETF as a proxy. Even more enticing, the REIT has increased its dividend every single year since its initial public offering in 1998, which is roughly 24 years. One more year and the REIT will be in the vaunted Dividend Aristocrat space.
Clearly, W.P. Carey understands the importance of dividends to its shareholders -- after all, it hiked its payout every quarter right through the coronavirus pandemic. To be fair, the increases were small, but they were made as a statement, showing investors that W.P. Carey hadn't lost its way.
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If you are a dividend investor looking to add a new name to your portfolio, W.P. Carey should be near the top of your wish list. With a simple and tested business model, a diversified portfolio, and a long history of returning value to shareholders via dividends, it's the kind of REIT that will let you sleep well at night.