Investors looking to become millionaires tend to think about offense and too little time thinking about defense. Both play an important role, and W.P. Carey (WPC -0.85%) can be a valuable addition to the playbook as you look to balance growth against safety. Here's why even budding millionaires will want to take a closer look at this slow and steady real estate investment trust (REIT).
A rush job isn't always a good job
Investors are notoriously bad at delayed gratification, preferring to try to get everything right away instead of being happy with a slow and steady climb. When things are going well on Wall Street, it's easy to think you can have it all, but the current market decline is just the latest of many warnings that good times don't last. Which is where a REIT like W.P. Carey and its hefty 5.1% dividend yield comes in.
That yield is particularly generous relative to the S&P 500 index's scant 1.4%. It's also larger than the yield you'll get from the average REIT of 2.2%, using Vanguard Real Estate ETF as a proxy. In other words, W.P. Carey is an income stock that, if set to dividend reinvest, will help you keep building your nest egg even when the market is heading lower.
The dividend, meanwhile, has been increased annually for 25 consecutive years, including in 2022. To be fair, the dividend hasn't grown quickly; call it mid-single-digit percentage increases annually over the past decade or so. But since stock prices generally grow along with dividend increases, those small hikes start to add up. And, when you add a few percentage points of dividend growth (hopefully leading to stock price appreciation) to the current yield, the return numbers get compelling. The 5.1% yield plus, say, 3% appreciation, gets you up to a healthy return of 8% or so.
The real kicker is the consistency. Even during the worst of the pandemic in 2020, W.P. Carey didn't skip a beat. Its rent checks kept rolling in, and its dividend checks kept rolling out to shareholders. If you watched 2020's stock market crash with fear in your heart, as any normal person would have, the company's dividend consistency would have helped you to stay the course and benefit from the eventual market rebound. Don't underestimate how important sticking out the tough times are when it comes to building a seven-figure nest egg.
What does this wonderful REIT do?
At its core, W.P. Carey is a net lease REIT. That means it owns single-tenant properties for which its tenants are responsible for property-level operating costs. It's a fairly low-risk approach as long as there are a lot of properties in the portfolio. W.P. Carey owns over 1,300 assets. It also focuses on signing long leases, with an average term of more than 10 years. Even a fairly long market or economic downturn wouldn't likely derail this reliable dividend payer's business.
Part of W.P. Carey's success, however, is directly related to its opportunistic investment approach. Management likes to put money to work where it sees the best value, highlighted by its announcement in 2020 that it was looking to invest in industrial assets. Lest we forget, that was still a very uncertain time thanks to the coronavirus lockdowns. The key to this opportunism, though, stems from another important focus: diversification.
W.P. Carey's portfolio is spread across industrial (26% of rents), warehouse (24%), office (19%), retail (18%), and self storage (5%), with a fairly large "other" category rounding things out to 100%. But that's not the only diversification that matters: It generates roughly 37% of its rents from outside the U.S., mostly in Europe. That gives it a lot of places to look for the best investment opportunities.
Slow and steady
W.P. Carey will never be as exciting as a meme stock or crypto currencies, but it also won't subject you to as much downside risk. And that hints at the big selling point for this reliable dividend payer. You can use it as the foundation for a broadly diversified portfolio that includes riskier, faster growing fare balanced by more reliable long-term investments that will help build a seven-figure nest egg.
