When many investors look at W.P. Carey (WPC 0.82%), what they see is a company that has let them down. That's understandable, given that the real estate investment trust (REIT) cut its dividend just one year shy of hitting 25 years, a key landmark year for many dividend-focused investors.
But while Wall Street waits for W.P. Carey to prove that it hasn't lost its way (it almost certainly hasn't), investors can collect an outsized 5.8% dividend yield. Here's why W.P. Carey could be the ultimate high-yield stock to buy today if you have $1,000, or more, to put to work.
How attractive is W.P. Carey's yield?
On an absolute basis, 5.8% is a fairly high dividend yield. But it gets even more attractive when you make some comparisons. For example, the S&P 500 index is only yielding around 1.2% today. The average financial stock is yielding 1.5%, using the Financial Select Sector SPDR ETF as an industry proxy. The average REIT is yielding 3.7%, using the Vanguard Real Estate Index ETF (VNQ 0.55%) as a proxy. Compared to those figures, W.P. Carey's dividend yield looks downright huge.
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It is even larger than Realty Income's (O 0.30%) 5.1% dividend yield. Realty Income is relevant on two fronts. First, it is the largest net lease REIT ahead of No. 2 W.P. Carey. Second, the portfolios of these two net lease REITs share important similarities, notably geographic exposure to Europe and diversification across retail, warehouse, and industrial assets. But there's a big difference, too -- Realty Income exited the office space without cutting its dividend.
To be fair, W.P. Carey's office segment made up a fairly large 16% of rents prior to the decision to exit the troubled sector. Too much of the company's revenue was tied to office for a rip-the-bandage-off approach to happen without a dividend reset. So the cut wasn't a decision that management made lightly. It was trying to set itself up for a brighter future.
WPC Dividend Per Share (Quarterly) data by YCharts.
Back on the bandwagon at W.P. Carey
Still, it is understandable that investors are disappointed. The discount relative to other REITs is the real-world implication of Wall Street taking a wait-and-see attitude with W.P. Carey. Only, in an important way, the REIT hasn't really skipped a beat. That's because in the quarter after the cut, it raised the dividend. The quarter after that, it raised the dividend again -- and again the quarter after that. Three quarters in a row? That's a trend. W.P. Carey has gone right back into the quarterly increase cadence that existed prior to the dividend reset.
To be fair, the dividend increases aren't large. But they weren't large before the reset, either. The point is that W.P. Carey is making a statement -- it is telling investors that nothing has changed about the business, other than the fact that it no longer owns or invests in office properties. However, something has changed, but in a good way.
The exit from the office sector has left the landlord with a large cash balance. At the end of the second quarter, the company very clearly explained that it has a record level of liquidity. This is money that W.P. Carey is looking to put to work in new investments. That, in turn, will lead to business expansion. So this high yield is backed by a company that looks like it is on the verge of a growth spurt.
Believe in W.P. Carey
If you have $1,000 or $100,000 to invest, W.P. Carey is clearly telling investors that it is ready to get back to growth. That's happening in hard cash with the dividend and with words, as the company goes to great lengths to tell investors about the money it has to spend. If you act now, you can lock in a relatively high yield from a company with a growing dividend. That's a very compelling story.
