I desire to become financially independent. My investment strategy is straightforward: I aim to build reliable sources of passive income that can eventually cover my basic living expenses. To execute this plan, I regularly invest in income-generating assets, such as high-yielding dividend-paying stocks.
This approach recently led me to purchase more shares of W.P. Carey (WPC), a company I strongly believe aligns with my passive income goals. Here's why W.P. Carey is integral to my dividend income strategy.
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Build to produce durable income
W.P. Carey is a real estate investment trust (REIT). It owns a well-diversified portfolio of high-quality operationally critical commercial real estate across North America and Europe. The company primarily invests in single-tenant industrial, warehouse, retail, and other properties secured by long-term net leases with built-in rent escalations. Those net leases provide the landlord with very stable rental income because tenants cover all property operating costs. Meanwhile, the built-in escalations either raise rents at a fixed rate or one tied to inflation, providing it with steadily rising income.
The REIT expects to produce between $4.87 and $4.95 per share of adjusted funds from operations (FFO) this year. That's more than enough to cover its dividend, which is currently up to $3.64 per share each year. With its stock price recently below $70 a share, W.P. Carey has a 5.2% dividend yield. I can generate $5.20 of annual dividend income for every $100 I invest in the REIT at that rate.
W.P. Carey's stable cash flow and conservative payout ratio put its high-yielding dividend on a rock-solid foundation.
Dual growth drivers
W.P. Carey stands out from other net-lease REITs due to its focus on investing in properties with built-in rental escalation clauses that primarily link rents to inflation (50% of its leases). Elevated inflation levels in recent years have helped drive faster rent growth. W.P. Carey's same-store annual base rents have grown at a 2% to 4% annual rate over the past few years. That provides a nice base growth rate to support dividend increases.
Acquisitions are the REIT's other main growth driver. W.P. Carey uses a combination of post-dividend free cash flow, new debt, equity issuances, and non-core asset sales to fund new investments. The REIT currently expects to invest between $1.4 billion and $1.8 billion this year. It had already secured $1.3 billion of new investments through early September, primarily single-tenant industrial properties in North America. These properties are currently the most attractive new investments it can make due to their combination of cap rates, lease terms, and rental escalations.
W.P. Carey has been leaning heavily on its capital recycling strategy to fund new investments over the past couple of years due to higher interest rates. The company sold $875 million of properties through early September, putting it on track to close $900 million to $1.3 billion of deals this year. The landlord has been primarily selling self-storage properties not secured by net leases. It can sell these properties at an attractive value to fund higher-returning new industrial property investments.
The REIT's growing income from rent increases and portfolio expansion allows it to steadily increase its dividend. The company's adjusted FFO per share is on track to rise by about 4.5% this year. That has given W.P. Carey the confidence to raise its payout by 4% over the past 12 months by giving investors a raise every single quarter. I expect the REIT to continue delivering steady dividend increases backed by rent growth and new property acquisitions.
A great REIT to buy and hold for passive income
W.P. Carey's diversified real estate portfolio provides stable and growing rental income, allowing it to pay a steadily rising dividend. That aligns with my goal of generating dependable passive income. This consistency gives me confidence to continue building my position over time.
