Stocks ticked lower this morning as markets awaited minutes from the July Fed policy meeting, which resulted in a 75 basis point rate hike. Investors will look for clues on what to expect during the next meeting in September. Economists at Nomura said the minutes would likely show that “all options are on the table” for the upcoming FOMC session.
With so much uncertainty, diversification is essential. Many investors are adjusting their portfolios accordingly by including stocks that could benefit in a variety of scenarios. Today we’ll highlight a ticker that offers a unique risk/reward profile plus a steadily growing dividend yield.
REITs offer a unique risk/reward profile that doesn’t always perfectly correlate with stocks or bonds because real estate is an asset class that’s not directly tied to traditional markets. REITs can bolster your portfolio when markets take a plunge. For example, during the dot-com recession, REITs increased every year from 2000 to 2002. By contrast, stocks were down every one of those years.
Historical returns aren’t bad, either. Over the past 20 years, REIT’s total return performance has beaten the performance of the S&P 500 as well as the Russell 1000 (large-cap stocks), Russell 2000 (small-cap stocks), and Bloomberg Barclays (U.S. aggregate bond).
REITs are also not required to pay federal taxes so long as they distribute at least 90% of their profits as dividends, making an investment in a quality REIT a relatively steady source of income.
W.P. Carey (WPC) is a leading net-lease REIT that invests in high-quality, single-tenant properties. Net-lease REITs reduce risk by passing property-specific expenses (usually maintenance, insurance, and taxes) directly to the tenant and embedding contractual rent increases in leases. That makes the REIT’s income more predictable and reliable.
W.P. Carey owns 1,350 properties across the U.S. and western Europe. Its properties are leased to 356 different tenants. Its historical occupancy has remained upward of 97% for over 10 years, with occupancy sitting at 99% today. The REIT boasts a well-diversified tenant base, with industrial, warehouse, and office properties representing nearly 70% of the portfolio and 17% retail exposure. A wide variety of assets means if one industry suffers from lack of demand, oversupply, or other economic impacts, the others can help carry the REIT’s portfolio without compromising earnings.
A portfolio diversified by property type helped to keep rent collections strong during the first quarter, with 100% collection for self-storage, office, and retail, 99% for industrial, and 94% for warehouse. In Q1, the portfolio showed a 98.9% occupancy rate and an average remaining lease term of 10.7 years. Adjusted FFO declined 11.5% on a per-share basis but exceeded analyst estimates. With over $1.9 billion of liquidity, W.P. Carey will be able to step up investments in new properties, which should fuel 2022 AFFO growth.
WPC’s share price is up nearly 8% since the beginning of the year, compared to the S&P 500’s 11% loss. Its price today is around 16 times its AFFO, which means it’s fairly priced even with its stock price up. The trust’s impressive history of 24 years of consistent dividend increases makes it one of the most reliable dividend payers available, plus its yield is nearing 5%, more than three times that of the S&P 500.
Should you invest in W.P. Carey right now?
Before you consider buying W.P. Carey, you'll want to see this.
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And it's not W.P. Carey.
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But you have to act now, because a catalyst coming in a few weeks is set to take this company mainstream... And by then, it could be too late.
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