Jhe idea of buying a single real estate investment trust (REIT) is hard for me to understand because there are so many different real estate niches. But, if you are looking for a “one and done” REIT to provide you with a solid and growing stream of passive income, you should put WP Carey (NYSE: WPC) on your short list. Here’s why I own this owner and why you might want to too.
Extend your bets
Long-term investors know that diversification is important because it helps reduce volatility over time. This is why you should own a few dozen stocks, so that some do well while others struggle. Real estate sectors are similar in that some will do well and some will not. Good examples of this today are offices, which are struggling as employees still avoid a return to normal working habits, and warehouses, which are experiencing historically high rent increases and high demand. Interestingly enough, WP Carey is exposed to both areas. But that’s not all he has in his wallet.
To quantify the REIT’s real estate exposure, it generates 26% of the rents from industrial assets, 24% from warehouses, 19% from offices, 18% from retail and 5% from self-storage facilities. The rest is categorized as “other”, which is actually a pretty big catch-all. Meanwhile, approximately 37% of WP Carey’s rentals are located outside of the United States, primarily in Europe. It’s easily one of the most diverse REITs you can own.
Using what he has
One of the most interesting things here is that WP Carey has always been opportunistic in the way he invests. For example, he prefers to buy properties under sale-leaseback agreements that allow him insight into a company’s finances. With this additional insight into a business’s rent-paying ability, it can comfortably take on tenants that others might deem too risky. Doing direct deals also allows WP Carey to have more control over rental terms so it can include things like inflation-indexed rent increases (about 58% of its leases currently have these increases built in). desirable).
These are more subtle benefits of the company’s approach. An obvious plus is WP Carey’s ability to switch between property types and geographies as he searches for the best deals. For example, most of its retail exposure is in Europe, where management believes the retail business is less oversized than in the United States.
And during the early days of the coronavirus pandemic, the REIT announced that it was looking to invest in industrial and warehouse space, sectors that have performed particularly well since then. This is a huge advantage that shouldn’t be overlooked, noting that the broad “other” category even affords WP Carey the leeway to make one-off deals in areas where he doesn’t have a broader reach.
The proof is in the dividends
The big question, however, is whether the REIT has been able to translate these positive characteristics into positive outcomes for investors. In this regard, it has increased its dividend every year since its 1998 initial public offering (IPO). The rate of dividend growth hasn’t been huge lately, but slow and steady is really what you’d expect from an owner of this size. In fact, growing too quickly could indicate that the management team may be taking on additional risk that you may not want if you only own one REIT.
With a generous dividend yield of around 5%, WP Carey is the type of REIT you could set and forget, knowing you’ve covered the broader real estate basket pretty well.
10 Stocks We Like Better Than WP Carey
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*
They just revealed what they think are the ten best stocks investors can buy right now…and WP Carey wasn’t one of them! That’s right – they think these 10 stocks are even better buys.
View all 10 stocks
* Portfolio Advisor Returns as of June 2, 2022
Reuben Gregg Brewer holds positions at WP Carey. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.