Dividend investors looking to create a reliable income stream would do well to consider Realty Income (O 1.94%). And looking at peer W.P. Carey (WPC 2.85%) would be a smart call, too. If buying both isn't a realistic option, here are a few things to consider as you try to pick one over the other.
The dividend (part 1)
Real estate investment trust (REIT) Realty Income has increased its dividend annually for 27 consecutive years, which is a very impressive streak. The average annualized increase over the past decade was roughly 5%, which is more than enough to keep up with the historical rate of inflation growth (noting that current inflation is running particularly high). That's a record that's hard to compete with.
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W.P. Carey, which like Realty Income is a net-lease REIT (net leases require tenants to pay for most of the operating costs of the assets they occupy), doesn't quite measure up here. But don't dismiss it -- the dividend has been increased annually every year since the company's initial public offering (IPO) in 1998. While not 27 years long, it's pretty hard to complain about the streak here. The dividend has grown at a compound annualized rate of 6% or so over the past decade, which is a touch better than what Realty Income achieved.
There's no winner here per se, but that's really the point. They stand toe to toe when it comes to dividend consistency.
The dividend (part 2)
While both REITs have strong dividend records, there's more to examine. For starters, Realty Income pays a monthly dividend, versus quarterly for W.P. Carey. If you are looking to replace a paycheck, getting a monthly dividend might be more attractive to you.
O Dividend Yield data by YCharts
Meanwhile, W.P. Carey's dividend yield is around 5%, compared to Realty Income's roughly 4.4%. If what you care about is maximizing your income stream, then W.P. Carey's higher yield would clearly be the winner, though notably both offer yields that are higher than the average REIT (around 3.9%), using Vanguard Real Estate Index ETF as a proxy.
The adjusted funds from operations (FFO) payout ratio of both REITs is comfortably below 80%. In other words, both appear to have well-supported dividends.
Portfolio construction
While both REITs use a net-lease approach, their portfolios are very different in one key way. Realty Income's portfolio of more than 11,700 properties is roughly 80% retail. The rest is industrial or other (which largely consists of a casino and vineyards). It is best looked at as a retail-tied investment.
W.P. Carey, on the other hand, manages a diverse portfolio of over 1,400 properties. Roughly 26% of its portfolio is focused on industrial assets, 24% warehouses, 18% office, 16% retail, 5% self storage, and a fairly sizable 11% in the catch-all "other" category. If you prefer diversification, W.P. Carey wins hands down.
That said, it should be noted that both REITs have exposure to Europe in the mix as well, so there is material geographic diversification in both instances. And while the difference in the number of properties is huge, net-lease retail assets tend to be small, while net-lease industrial, warehouse, and office assets are on the larger side. Realty Income is a much larger REIT, but W.P. Carey is still a very material industry player, too.
The ethos that each company operates by
One last issue to consider is the management approach each of these two REITs takes. Realty Income is laser-focused on being a conservative dividend stock for income-focused investors. It actually trademarked the nickname "The Monthly Dividend Company." Slow and steady is the general approach. That will likely appease a great many retirees who are looking to live off of the income they generate from their portfolios.
W.P. Carey has a long history of investing opportunistically. That's supported by its highly diversified portfolio, as it can put money to work where it sees the most value sector-wise and geographically. However, it also frequently leads the company to work with lower-quality tenants (31.5% of tenants are investment grade, versus 43% at Realty Income). Basically, W.P. Carey has a history of taking on bigger risks with the hope of bigger rewards (noting the higher dividend growth rate over the past decade and the higher yield). If investing opportunistically strikes your fancy, W.P. Carey will probably fit right into your portfolio.
No clear winner, but...
I own both Realty Income and W.P. Carey, and quite happily so. I appreciate the conservative nature of Realty Income and its giant portfolio of (relatively easy to buy and sell) retail properties. But I also like the ability W.P. Carey has to shift as the market shifts, even though that means taking on some additional risks. I generally think the relative dividend yields on offer here address the differences fairly well. Although you might prefer one over the other based on your personal investment preferences, pairing them up could actually be the best option of all.
