Investing for the long term requires a different mindset than the short-term speculating one sees among traders. W.P. Carey (WPC +0.34%) offers up a great combination of benefits that matches well with that long-term investing criteria.
Let's look at the criteria and see why dividend investors looking for a real estate investment trust (REIT) to add during the current bear market should consider W.P. Carey stock.
With this REIT, tenants pay most of the costs
Triple net lease properties are generally single-tenant assets that require the tenant to pay most of the operating costs of the property (including upkeep, insurance, and taxes). The REIT basically collects rent and the tenant handles the rest. Any single property can be high risk given that there's just one tenant, but when a company spreads the risk across a large enough portfolio, this approach becomes a fairly low-risk endeavor. W.P. Carey has over 1,300 properties in its portfolio.
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Net lease assets tend to have long leases, which means that most tenants are obligated to pay rent throughout an economic cycle (including downturns). W.P. Carey's average lease length exceeds 10 years. These long leases also generally include annual rent escalators, helping to protect the income stream generated from taking a hit due to inflation. In fact, more than half of W.P. Carey's leases have rent escalators specifically tied to inflation. That means that the REIT's tenants are the ones really bearing the brunt of today's rising costs.
W.P. Carey's clientele is diverse
Many net lease REITs focus on just one segment -- retail. W.P. Carey prefers to mix things up a little more. Actually, a lot more. The portfolio includes industrial (26% of rents), warehouse (24%), office (20%), retail (16%), self-storage (5%), and a large "other" category (the rest). That means that no one property type will have an outsized impact on the REIT's cash flows. Adding even more diversification to the mix, roughly 33% of rents come from Europe, so no one country has an unrealistically large share of the portfolio either. I believe that diversification is a huge net benefit for my portfolio over the long term, and W.P. Carey fits right in with my logic.
W.P. Carey is opportunistic
I'm always looking for a bargain and so is W.P. Carey's management team. There are a number of ways it goes about this. For example, having multiple property types and regions allows the team to put cash to work where it finds the most value. It also likes to originate sale/leaseback deals, so it can set favorable lease terms and dig into the financials of its potential tenants. That gives the REIT the confidence to take on lower-quality tenants that other REITs might prefer to avoid.
That last point presents some concern for some investors, given that less than a third of its rents are backed by investment-grade tenants. However, W.P. Carey sailed through the worst of the pandemic in 2020 without skipping a beat, while many of its peers were having trouble collecting rent. To put a number on that, rent collection remained in the high 90% range the entire time, as if the world weren't experiencing a global health crisis. So, all in, the company's opportunistic approach is a net positive even though the tenant quality thing might be a little worrying.
NYSE: WPC
Key Data Points
W.P. Carey's dividend is generous
W.P. Carey's current dividend yield is a generous 5.4%. It has been much higher, but it has also been materially lower. It seems reasonable, overall, for investors seeking out income stocks given today's market and the size and quality of the REIT (particularly noting the inflation protection built into its rent hikes).
However, the more attractive dividend fact is that W.P. Carey has increased its dividend annually since its initial public offering in 1998. It is on the verge of becoming a Dividend Aristocrat. The dividend has been growing fairly slowly of late but management has been closing down an asset management business, a process that is now largely complete. With that done, and revenue up 7.7% year over year in the second quarter, there's a good chance that dividend hikes could pick up from here.
Nothing is perfect, but I sleep well at night
I enjoy watching my dividends roll in, and reinvest, so W.P. Carey is just about a perfect investment for me. I'd prefer more high-quality tenants and faster dividend growth, but neither one eliminates the REIT from my top list. I own this highly diversified and opportunistic REIT and I think most long-term investors would benefit from adding it to their portfolios, too.
While you could wait, given the bear market, this industry-leading name appears attractive today and if you wait too long you might never get the chance to buy it. In other words, it's often better to be about right and go ahead and buy than to keep waiting for the perfect time, which invariably never comes.
