W.P. Carey Offers Attractive Dividend Despite Recent Challenges
Many investors may feel let down by W.P. Carey (NYSE: WPC), particularly after the real estate investment trust (REIT) cut its dividend just one year shy of reaching 25 years of increases—a significant milestone for dividend investors. Despite this setback, the REIT currently offers a compelling dividend yield of 5.8%. Here’s why investing in W.P. Carey could be a smart choice if you have at least $1,000 to invest.
W.P. Carey’s Yield Compared to Others
At 5.8%, W.P. Carey’s dividend yield stands out positively when compared to other financial benchmarks. For instance, the S&P 500 index currently offers a yield of only around 1.2%. In the financial sector, the average yield is 1.5%, as indicated by the Financial Select Sector SPDR ETF. On the other hand, the average yield for REITs is approximately 3.7%, according to the Vanguard Real Estate Index ETF (NYSEMKT: VNQ). Thus, W.P. Carey’s dividend yield appears significantly more attractive.
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W.P. Carey’s yield also surpasses Realty Income‘s(NYSE: O) 5.1% yield. Realty Income is notable as the largest net lease REIT, with W.P. Carey following closely. Both companies share similarities, such as geographic exposure in Europe and diversified portfolios encompassing retail, warehouse, and industrial properties. The key difference is that Realty Income exited office space without a dividend cut, unlike W.P. Carey, which made significant changes to its portfolio.
Before leaving the office sector, W.P. Carey derived around 16% of its rents from this area. The management weighed its decision carefully, as a quick exit without adjusting the dividend wasn’t feasible. The cut was intended to reposition the company for future growth.
WPC Dividend Per Share (Quarterly) data by YCharts.
W.P. Carey’s Road to Recovery
Investor disappointment is understandable given the recent dividend cut. The market’s cautious stance on W.P. Carey manifests in its stock discount compared to peers. However, it’s noteworthy that the company resumed increasing its dividend the very next quarter after the cut, and has continued to raise it consecutively for three quarters. This trend signals confidence in the company’s operations.
While the increases have not been large, this return to growth is significant. W.P. Carey is signaling to investors that, aside from moving away from office properties, the business remains on solid ground.
The company’s exit from the office sector also resulted in a strong cash position. As of the end of the second quarter, W.P. Carey indicated a record level of liquidity, positioning it to invest in new opportunities for expansion. This growth potential supports its high dividend yield.
Is W.P. Carey a Good Investment?
If you’re considering investing in W.P. Carey, it is evident that the company is striving to return to growth. This is reflected in its actions concerning dividends and its communication about future investments. By investing now, you could benefit from a high yield and the potential for a growing dividend—a promising scenario.
Should You Invest $1,000 in W.P. Carey Now?
Before making any investment in W.P. Carey, it’s crucial to take into account some advice:
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Reuben Gregg Brewer holds positions in Realty Income and W.P. Carey. The Motley Fool also has positions in and recommends Realty Income and Vanguard Real Estate ETF. More details can be found in the Motley Fool’s disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
