I love to collect passive income. Because of that, I'm always putting more of my hard-earned money to work for me.
One of my favorite passive-income sources is real estate investment trusts (REITs). I own several, including diversified REIT W.P. Carey (WPC -0.91%). I recently put another $750 into that REIT (enough to buy 10 more shares). Here's why I keep adding to my position in W.P. Carey.
A beacon of dividend dependability
W.P. Carey has been an excellent passive income stock over the year. The REIT has increased its dividend every year since its initial public offering in 1998. It currently yields 5.5%, which is well above the REIT sector's average of around 3% and the S&P 500's 1.3% dividend yield.
W.P. Carey has been able to continue growing its above-average dividend because it owns a high-quality real estate portfolio and has a strong financial profile. The REIT has a diversified portfolio by property type (26% industrial, 24% warehouse, 20% office, 18% retail, 5% self-storage, and 8% other), geography (63% U.S., 35% Europe, and 2% other), and tenant (352 tenants from a range of industries). W.P. Carey also focuses on high-quality assets in prime locations that are critical to the operations of their tenant. It secures these properties with long-term triple net leases -- making the tenant responsible for maintenance, building insurance, and real estate taxes -- with high-quality tenants. These factors reduce risk, enabling W.P. Carey to generate very stable rental income to support its dividend.
The company compliments that quality-focused portfolio with an excellent financial profile. It had a solid dividend payout ratio of 83.6% in 2021 -- conservative for a diversified REIT -- and an investment-grade credit rating. That gives it the financial cushion to maintain a high-yielding dividend and the flexibility to continue expanding its diversified real estate portfolio.
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More growth ahead
While W.P. Carey's rock-solid high-yielding dividend is the main reason I continue adding to my position, it's not the only one. I also like the REIT's total return potential, which is its dividend yield plus its earnings growth. Last year, W.P. Carey grew its adjusted funds from operations (AFFO) by 6.1%. It benefited from a record investment volume of $1.72 billion and contractual rent escalations at its existing properties. It also refinanced debt, which helped lower interest costs.
The diversified REIT anticipates growing even faster this year. At the mid-point of its guidance range, it sees AFFO per share expanding by 7.2%. The REIT will get an inflation-driven boost in rental rates thanks to inflation-related escalators in its leases. Overall, 59% of its leases have rate increases linked to the consumer price index, with nearly all the rest having some contractual rate increase.
W.P Carey also expects to continue benefiting from acquisitions. It's targeting to acquire between $1.5 billion and $2 billion of properties this year. W.P. Carey's acquisition momentum accelerated toward the end of last year, enabling it to achieve record deal volumes for 2021 and enter 2022 with a healthy pipeline. While it made the bulk of its deals last year in the warehouse and industrial sector (70% of its acquisitions), its diversified approach across two continents provides it with a vast addressable market. Because of that, it should have no shortage of acquisition opportunities in 2022 and beyond. The company noted that companies increasingly see the benefits of sale-leaseback transactions to unlock the value of their critical operating real estate. That's providing W.P. Carey with a steady deal flow.
Attractive income with some upside
W.P. Carey offers a well-above-average dividend yield that's on rock-solid ground, a rarity in today's low-yield environment. On top of that, it provides some growth potential as it benefits from inflation and its ability to continue expanding its diversified portfolio, which should enable it to continue increasing that dividend. Those characteristics make W.P. Carey a great stock for earning some passive income, which is why I keep adding to my position.
