The yield on the S&P 500 Index is a scant 1.3% and, as you might expect, many once-high-yielding sectors have seen yields come down along with the yield of the broader market. It is actually kind of hard to find good dividend stocks these days, if you are also looking for a generous yield, say of 5% or more. But it is not impossible, and W.P. Carey (WPC 0.27%) and Total (TTE -0.32%) are prime examples. Here's a quick look at why you should have these two stocks on your radar today.
1. An all-in-one REIT
W.P. Carey is a real estate investment trust (REIT) that uses the net lease format. Basically, most of the costs of maintaining the single-tenant properties it owns are borne by the companies that lease them. It's a fairly low-risk approach in the property sector, and a lot of REITs use it. However, W.P. Carey stands apart from the pack for a number of vital reasons.
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For starters, it has increased its dividend every year since its 1998 initial public offering. If you do the math, W.P. Carey is on the verge of becoming a Dividend Aristocrat. Second, it is among the most diversified REITs you can buy, with 25% of rents coming from industrial assets, 22% from office, 22% from warehouse, 18% from retail, and 5% from self-storage, with a broad "other" category making up the remainder. In addition to this property-level diversification, W.P. Carey also generates 38% of its rents from outside the United States, largely in Europe. It's almost a one-stop shop if you are looking to buy a REIT.
Now add in a 5.5% dividend yield, and the appeal only grows. Note that the average REIT, using Vanguard Real Estate Index ETF as a proxy, yields around 3.3%, so this is not attractive only relative to the market but also compared to the sector in which W.P. Carey operates. Part of the reason for its higher yield is that only around 30% of the company's tenants are investment grade. But don't get too worried about that.
W.P. Carey originates most of its own leases via sale/leaseback transactions, which gives it access to the financials of the companies with which it is going to sign leases. It believes it can add value by taking the time to work with lower-credit-quality tenants that others might avoid. If the 24 years of annual dividend hikes isn't enough to prove that its leasing decisions add value, then how about the fact that the REIT's rent-collection rate in pandemic-hit 2020 never fell below 96% -- way better than the rates of most of its closest peers. If you don't have W.P. Carey on your short list already, you should put it on today.
2. Changing, slowly
Next up is French integrated energy giant Total, which is offering a yield of 6.5% -- well above Vanguard Energy Index's 3.6%, using it as a proxy for the sector. Like most of its peers, Total had a rough year in 2020 with oil prices falling to painful lows when economic shutdowns crimped demand. Oil prices are back at pre-pandemic levels, which is good, but now the energy giants are dealing with something that is, perhaps, even bigger for them -- ESG.
TOT Dividend Yield data by YCharts
Basically, the carbon fuels that underpin Total's business are in the crosshairs of environmentalists, activist investors, and, increasingly, governments. Some of the company's peers are moving aggressively to clean energy (Shell and BP), while others are sticking to their oil and natural gas roots (Exxon and Chevron). Total is somewhere in the middle, with plans to keep growing its traditional assets (though lightening up on oil as it increases natural gas) and working to expand its already sizable footprint in electricity and renewables. The goal is to triple the size of its "electrons" business by 2030 while at the same time increasing the size of the entire company.
The important thing to keep in mind is that Total, like many others in the industry, expects demand for fossil fuels to remain robust for years to come. There's a couple of reasons for this, including the fact that it will take time to build the new infrastructure needed for an electric world and the continued economic growth of emerging markets. Basically, Total is expecting more of all energy sources to be needed. And that will help it fund its slow and deliberate shift toward clean energy. That is a measured approach to a very big issue that will appease more conservative investors. While Total is unlikely to be exciting, it should be a reliable dividend payer; it maintained its payout through the 2020 downturn when more aggressive changers BP and Shell didn't.
Proven dividend payers
There are obviously a lot of differences between W.P. Carey and Total, but there are some similarities, too. For example, they are both taking conservative approaches in their businesses, and they both offer dividend yields above 5%. If you take the time to dig in here, it is likely that one, or both, could end up in your high-yield portfolio today.
