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Why W.P. Carey Might Be the Best Long-Term Dividend Stock

By Reuben Gregg Brewer - Jun 11, 2021 at 8:08AM

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There are three main reasons that few of its peers can match. Here's why long-term investors should look at this REIT.

If you are looking for a long-term dividend stock, starting with real estate investment trusts (REITs) makes a lot of sense. But all REITs, which are specifically designed to pay generous dividends, are not created equal. That's why a name like W.P. Carey (WPC 0.91%) stands out. Here are three reasons you might want to buy and own this landlord for a very long time.

1. The dividend

To address the top issue right at the top, W.P. Carey offers a generous 5.3% dividend yield at recent prices. That's well above the 1.3% on offer from an S&P 500 index fund. It also bests the 3.2% you'd get from the average REIT, using the Vanguard Real Estate Index ETF as a proxy. But a relatively generous yield alone isn't enough to make a dividend stock worth buying. 

A person raising their arms in triumph in front of a computer.

Image source: Getty Images.

Which is why it's also important to keep in mind that W.P. Carey has increased its dividend annually every year since its 1998 initial public offering. That puts the REIT on the cusp of becoming one of the Dividend Aristocrats -- an elite group of companies with at least 25 straight years of increasing dividends, proving over time that they view dividends as a cornerstone of how they return value to shareholders. Highlighting this fact, W.P. Carey increased its dividend, albeit by token amounts, in every quarter of pandemic-hit 2020.

Put simply, dividends are a core aspect of owning W.P. Carey, and the company clearly knows and respects this fact.

2. The portfolio

Investors are always being told to diversify their portfolios so they don't have all their eggs in one basket. It's great advice -- and it also applies to companies. W.P. Carey has taken this key investment concept to heart. It is one of the most diversified REITs you can buy.

Some numbers will help illustrate. Industrial properties make up roughly 25% of W.P. Carey's rent roll. Following that are office and warehouse assets, each comprising 22% of the REIT's rents. Retail properties chime in at 18%, with self-storage at 5% and a fairly large "other" category rounding things out to 100%. If that were the end of the story, it would be a pretty good one, but it isn't. W.P. Carey is also diversified geographically, with roughly 38% of its rent roll coming from outside the United States. The vast majority of that (36%) is from Europe.  

Diversification helps to reduce risk by stabilizing returns over time. W.P. Carey is all in on the concept, which should make it easier for investors to stick tight, through the good times and the bad. 

3. The approach

The last reason to like W.P. Carey has a little overlap with No. 2 because they complement each other. The REIT is highly opportunistic in how it puts money to work. Management isn't looking to constantly buy just to expand; it only wants to buy properties when it believes it can create value for shareholders.

That often means acquiring out-of-favor assets when others aren't willing to put money to work. Or, similarly, it might invest in areas with less competition. Spreading its bets across various property types is an immense help with regard to finding something of value at any given time.

WPC Chart

WPC data by YCharts.

A couple of examples will help fill out the picture here. The United States has a massive amount of retail real estate -- way too much, some argue. W.P. Carey would likely agree with that sentiment, which is why most of its retail investments are in Europe. With generally less retail across the pond, the company believes it can find more desirable long-term holdings there.

From a different angle, W.P. Carey is also willing to work with lower quality tenants, with only around 30% of its portfolio filled with investment-grade counterparties. That sounds bad until you learn that the REIT generally invests using sale/leaseback transactions, which means it gets to do a deep dive into potential tenants' books before taking them on as tenants. In short, it believes it can add value by working with companies that are financially strong, but below investment grade -- ones that others might avoid. Management tends to highlight whenever one of its tenants gets a credit upgrade, which is really just a way to boast that it saw the positives ahead of the credit rating agencies. The fact that rent collections never dropped below 96% in 2020 is proof that its credit analysis work has panned out well for investors. 

Add in the net lease structure, which means that its tenants are responsible for most of the costs of the properties they occupy (keeping costs down), and you can see that W.P. Carey's investment technique makes for a winning strategy.

A great long-term hold

W.P. Carey isn't perfect; no stock is. Notably, the current yield is about middle of the road for the REIT, suggesting that it is fully valued today. But paying a fair price for a great dividend stock is probably worth the price of admission for most investors. If you are looking for a dividend payer with a great history, a generous yield, and a differentiated investment approach, then W.P. Carey should be at the top of your list. 

Reuben Gregg Brewer owns shares of W. P. Carey. The Motley Fool owns shares of and recommends Vanguard REIT ETF. The Motley Fool has a disclosure policy.

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Stocks Mentioned

W. P. Carey Inc. Stock Quote
W. P. Carey Inc.
$87.33 (0.91%) $0.79
Vanguard Specialized Funds - Vanguard Real Estate ETF Stock Quote
Vanguard Specialized Funds - Vanguard Real Estate ETF
$101.08 (1.08%) $1.08

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