W.P. Carey: High Dividends vs Risky Business Landscape

Investors eye W.P. Carey for its 6.3% dividend yield. However, concern looms over a recent dividend cut. The stability of returns hinges on a strategic exit from the office sector and new growth opportunities ahead.

Date: 01-02-2025

AI Rating: 6

Dividend Yield: W.P. Carey is currently offering a 6.3% dividend yield, significantly above the S&P 500's 1.2% and the average REIT yield of 3.8%. This attractive yield could appeal to income-focused investors.

Dividend Cut: One major point of concern is the dividend cut made at the start of 2024, which has led some conservative investors to view W.P. Carey as uninvestable. However, the subsequent increase in dividends each quarter since the cut is a positive sign, indicative of management's commitment to regrowth.

Office Sector Exit: W.P. Carey's strategic exit from the office sector, which previously contributed 16% of its rents, was decided in light of ongoing challenges within that market. Although this decision temporarily impacted dividends, it has allowed the REIT to reset and potentially enhance its long-term outlook.

Interest Rates and Cost of Capital: The rise in interest rates presents a broader challenge for W.P. Carey. Higher interest rates increase the cost of capital, making debt and equity issuance to fund acquisitions more expensive. This situation could stifle growth and reinvestment efforts across the REIT sector.

Future Growth Potential: On a positive note, the divestment from the office sector has provided W.P. Carey with cash to invest in more lucrative ventures. With a record dollar volume of deals in the fourth quarter of 2024, the REIT is poised for growth in 2025 as new rental income from these acquisitions begins to contribute to earnings. The diversification across industrial, warehouse, and retail sectors (64% North America, 36% Europe) further stabilizes its revenue stream and reduces risk.

Stocks: WPC