One of the best things about buying real estate investment trusts (REITs) is that with the right stock, an investor can gain appreciation and procure a solid monthly or quarterly dividend for additional income.
But because not all REITs will deliver solid appreciation and dividend growth, it's important to look at a REIT's five-year history to help assess possible future returns. Take a look at one popular REIT over the past five years and what it's generating in dividends today compared with July 2018.
W.P. Carey Inc. WPC is a New York City-based diversified net-lease REIT, whose single-tenant properties include industrial, warehouse, office, retail and self-storage units. It was founded in 1973 and recently celebrated its 50th year of investing in properties. W.P. Carey has traded on the New York Stock Exchange since 1998 and converted to a REIT in 2012.
W.P. Carey has 1,446 net leased properties with approximately 176 million square feet in 26 different countries. Its portfolio includes 397 tenants from over 30 industries and an occupancy rate of 99.2%. One important consideration is that 99% of its property leases include rent escalators to buffer the inflationary environment prevalent today.
The market has a long history of overselling REITs when facing a potential recession, providing an incredible opportunity for investors to “lock in” massive yields. Gain access to insights from Benzinga’s real estate research team with the free Weekly REIT Report.
If you had invested $10,000 in W.P. Carey five years ago, you would have received 149.12 shares at a price of approximately $67.06. The quarterly dividend at that time was $1.02 per share.
Over that time, W.P. Carey has incrementally raised its quarterly dividend 20 consecutive times and now pays out $1.069 per share. The last increase was announced on June 15, when it increased the quarterly dividend from $1.067 to $1.069 per share. The dividend is payable on July 14 to shareholders of record as of June 30.
Looking back further, W.P. Carey has raised its quarterly dividend for 98 consecutive quarters, dating back to 1999. The annual dividend of $4.28 presently yields 6.32% and the forward funds from operations (FFO) payout ratio is 81.6%. While the payout ratio is a little higher than investors would like to see, it's still easily covering the dividend and has actually come down with its last two solid quarters of FFO that beat the estimates.
Your original investment of $10,000 would now have grown to $13,214, which includes $20.95 of collected dividends plus appreciation of $0.59 per share. That's a total return of 32.12%, or an average total annual return of 5.74%.
Many investors prefer to reinvest their dividends. If you had chosen to reinvest your dividends instead of collecting them, you would now have a total of 198.16 shares for a total return of 34.06%, or an average total annual return of 6.04%. Your original $10,000 investment would now be worth $13,403.
While it appears that the stock price itself has been flat over the past five years, two factors must be kept in mind. That five-year period includes a stock market collapse at the onset of COVID-19, which cut W.P. Carey's share price from $72.68 to $43.39 in one month. Additionally, unlike many other REITs, W.P. Carey did not cut or suspend its dividend through the worst of the COVID-19 era but instead continued raising the dividend. That demonstrates W.P. Carey's financial strength as well as consideration for its investors.
If you are an income investor who is looking for a stable and reliable dividend payer, W.P. Carey could be a valuable addition to your portfolio.
Weekly REIT Report: REITs are one of the most misunderstood investment options, making it difficult for investors to spot incredible opportunities until it's too late. Benzinga's in-house real estate research team has been working hard to identify the greatest opportunities in today's market, which you can gain access to for free by signing up for Benzinga's Weekly REIT Report.
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