Early in my dividend investing life, I only looked at stocks with yields above 10%. I don't ignore such high yields today, but I'm more likely to temper my expectations and think about long-term performance over short-term stock rebounds. Having a family and bills to pay, and the hope for a serene retirement one day, helped shift my habits. And W.P. Carey (WPC 2.85%) is now a great example of the type of company I want in my portfolio now and well into my retirement years.
1. It pays reliable dividends
One of the things that I've always looked for is dividends. And I've long favored companies that have a history of regularly increasing the payment. W.P. Carey has hiked its dividend annually since its 1998 initial public offering (IPO). It is on the verge of becoming a Dividend Aristocrat, with 25 years of annual increases under its belt. When I'm retired, I want that kind of reliability, noting that the landlord was able to keep increasing its dividend even through the pandemic headwinds in 2020.
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2. A solid business model
A real estate investment trust (REIT) can't keep increasing its dividend year in and year out without a strong core. For W.P. Carey, that core is the net lease approach. Basically, it tends to use sale/leasebacks when buying properties, and the leases it creates require the tenant to pay for most of the operating costs of the assets they occupy. There's a couple of issues worth noting here.
W.P. Carey is buying properties directly from companies that currently occupy them, providing the sellers with cash they can use for other purposes, like growth spending. It is offering material value to its customers. This direct relationship, meanwhile, allows W.P. Carey to get a close look at the performance of the properties it buys and whether or not they are vital assets to the seller. This means that the REIT can make better decisions about what it is buying and set lease terms that are mutually beneficial. When everybody is happy with a deal, I win too.
And, while any single property can pose material risk given that net leases are single-tenant assets, over a large portfolio the risk is pretty low. W.P. Carey owns more than 1,250 properties.
3. A lot of diversification
Another factor that's important here is that W.P. Carey's portfolio is spread out over the industrial (25% of rents), warehouse (24%), office (21%), retail (17%), and self-storage (5%) sectors. A fairly large "other" category rounds out the mix. On top of that, W.P. Carey generates roughly 37% of its rents from outside of the United States. Add it all up and this is one of the most diversified REITs an investor can buy. As I've gotten older, I've started to appreciate the benefit of diversification in my portfolio, and adding a highly diversified REIT to the mix makes my portfolio diversification that much better.
4. A bit of an aggressive streak
So far I've focused on the safety factors, including a reliable dividend, a reliable business model, and wide diversification. But I'm not exactly looking for a boring investment that will put me to sleep in my recliner. And W.P. Carey adds just enough spice to keep me excited. Specifically, it has a habit of being an opportunistic investor. For example, in the early days of the pandemic, the company was quick to announce that it was looking for industrial and warehouse assets to buy, hitting early on the e-commerce and supply chain themes that have been so important of late.
As I've aged and gotten more conservative, I don't have the wherewithal to make those kinds of calls anymore. I'm happy to have W.P. Carey do it for me. And, with the company's broad diversification, I know it can shift its investment focus quickly and easily to where management sees the most opportunity. All I need to do is sit back and watch the company do all that hard work for me.
A good all-around REIT
Every investment comes with warts, and W.P. Carey is no different. For example, dividend growth has been slow lately because it has been shutting down an asset management division. But, given the notable benefits above, I'll be happy to hold this net lease REIT for years to come. Add in a relatively generous 5.5% dividend yield and it's hard not to like this landlord today, even if, like me, you aren't quite retired yet.
