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Don't Wait for a Market Crash to Buy This Dividend Stock

The broader market is offering a frighteningly low dividend yield of just 1.3% today, looking at the broad-based S&P 500 index. Wouldn't you rather get 5.5% from a company that has a long history of regular dividend increases behind it? If that's the case, here's why you shouldn't wait around for the next market downturn to buy diversified landlord W.P. Carey (NYSE: WPC).

A virtue for investors of all kinds

One of the most attractive attributes of W.P. Carey's business is its diversification. You know that you should diversify your investment portfolio -- well, the same is true for real estate investment trusts (REITs). There are different ways to go about diversification. For example, a REIT can stick to one property sector and own a large number of properties so that no single asset will have a big impact on its business. Alternatively, a landlord can focus on a specific region with a collection of different property types, so a downturn in, say, the office space won't derail the entire portfolio. W.P. Carey employs both approaches.

Image source: Getty Images.

Its portfolio spans across industrial (25% of rents), warehouse (23%), office (21%), retail (18%), self storage (5%), and what it calls "other" categories (the remainder). And W.P. Carey's portfolio contains more than 1,250 properties. That's a lot of sectors and a lot of properties. Note that some of the property niches it serves (like office) generally require owning larger individual assets, which lowers the total count compared to some of its peers (specifically those focused on the retail sector). However, the diversification doesn't stop there. W.P. Carey also generates nearly 40% of its rents from outside the United States. It is one of the most diversified REITs you can own.

Adding to the allure, W.P. Carey uses the net-lease approach, which is generally considered a low-risk way to own real estate. Essentially, it buys properties from companies that are looking to raise cash for other purposes, like growth spending. It then instantly leases the asset back to the seller (called a sale/leaseback transaction) with a long-term lease. Moreover, W.P. Carey tends to include annual rent escalators in most of its contracts, with 60% of its contractual hikes tied to inflation.

But wait, there's more

So far there is a lot to like about W.P. Carey's business. However, you really need to go one step deeper to understand why all of this diversification is so desirable. The management team here tends to be opportunistic, looking to put money to work where there is value to be had. Being broadly diversified by sector and region allows it to do just that with relative ease, since it isn't locked into anything portfolio-wise. For example, early on in the 2020 pandemic-led downturn, W.P. Carey announced that it was looking to start buying industrial and warehouse assets, which turned out to be hot areas due to the economic closures. A retail-focused net-lease REIT couldn't have done that.

WPC Dividend Yield data by YCharts.

The best part of the story, however, is the success this net-lease landlord has achieved as it has executed its plans. Since REITs are specifically designed to pass income on to shareholders, one of the best ways to assess W.P. Carey's results is by looking at its dividend history. The REIT has increased its dividend every year since its 1998 initial public offering. That puts it on the cusp of reaching Dividend Aristocrat status, which kicks in after 25 years of annual dividend hikes. Note that this span includes the 2000 technology meltdown, the 2007 to 2009 recession, and the global pandemic in 2020 -- W.P. Carey kept increasing the dividend right through all of these major market dislocations. That's an impressive level of consistency.

It's worth acting now

To be fair, W.P. Carey's dividend yield has been higher in the past. However, if you are looking to find a good yield in today's market, it is hard to argue with the stock's impressive 5.5% payout. And that's notably higher than what's on offer from some of its closest net-lease peers (size- and history-wise) and the average REIT, using Vanguard Real Estate Index ETF as a proxy. All told, if you are a dividend investor, it's just not worth waiting here.

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Reuben Gregg Brewer owns shares of W. P. Carey. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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