W.P. Carey (NYSE: WPC) currently sits more than 15% below its 52-week high. The weakness in its share price is a big reason the real estate investment trust (REIT) offers a dividend yield above 6%. That’s multiples higher than the S&P 500‘s dividend yield, which currently sits near a 20-year low at 1.2%.
The diversified REIT‘s high-yielding dividend should steadily rise in the future. That makes it an excellent stock to buy and hold for dividend income in the decades ahead.
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W.P. Carey has undergone some major changes over the past year. The company made the strategic decision to exit the office sector late last year. It subsequently sold or spun off its entire office portfolio. In addition, one of its former top tenants exercised its option to acquire a portfolio of self-storage properties it had leased from the REIT.
As a result of that lost income and a desire for a more conservative dividend payout ratio, W.P. Carey reset its dividend last year. That ended a quarter-century of dividend growth.
W.P. Carey now has a much stronger foundation. Asset sales have strengthened its balance sheet. It ended the third quarter with a 5.4 leverage ratio, below its conservative leverage target in the mid-to-high 5s. It also has a lower dividend payout ratio, allowing it to retain more cash to fund new investments. As a result, it has a much more conservative financial profile and significant flexibility, leaving its high-yielding dividend is on a much firmer foundation.
The REIT has started to rebuild its portfolio by acquiring properties with better long-term fundamentals than the office sector, like industrial real estate. The company had invested $971.4 million into new properties through the end of October. For example, it purchased a 19-property portfolio of industrial and warehouse properties in the U.S. and Canada for $191 million. The portfolio has an average remaining lease term of 13 years, with leases escalating at either a fixed rate, in Canada, or one tied to inflation, in the United States. W.P. Carey also completed a $52 million five-property sale-leaseback transaction of industrial and warehouse properties in Italy and Canada. The leases featured a 25-year term that escalates rents at a fixed rate, in Canada, or an inflation-linked rate, in Italy.
W.P. Carey currently owns over 1,400 properties net leased to high-quality tenants with a weighted average lease term of 12.2 years. Nearly two-thirds of its portfolio are industrial or warehouse properties, with 22% retail and 15% other properties. Meanwhile, 53% of its leases link rents to inflation, while another 43% raise them at a fixed rate. As a result, the REIT’s existing portfolio should produce steadily rising rental income, as rents grew at a 2.8% annualized rate in the third quarter.
