Down 42%, Is Ultra-High-Yield W.P. Carey Stock a Buy on the Dip?

If you're looking for a way to quickly boost the amount of passive income flowing into your accounts, I have great news. there's a highly reliable dividend payer that's being treated as if it's having trouble making ends meet.

Shares of W.P. Carey (NYSE: WPC) have fallen about 40% from the peak it reached in 2019. At its beaten-down price, the real estate investment trust offers investors a 6.6% yield.

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Let's weigh some reasons it's getting beaten down against its strong points to see if it's a smart stock to buy on the dip.

Why W.P. Carey's stock price is under pressure

Instead of slowly selling off an underperforming portfolio of office buildings, W.P. Carey made an unpopular decision to spin off its office segment in late 2023. Nobody wept over the loss of its increasingly obsolete office buildings, but income seekers are still avoiding this stock because it lowered its dividend payout accordingly.

As a real estate investment trust (REIT) W.P. Carey must distribute nearly all its profit to investors through dividend payments. The inability to retain earnings leaves REITs without much room for error, so one dividend cut often becomes several.

Cautious investors tend to avoid REITs for years after a dividend cut regardless of their ability to meet their dividend commitments. I'd argue they're being overly cautious regarding W.P. Carey lately.

In addition to lingering nervousness caused by 2023's dividend reduction, shares of W.P. Carey have been under pressure because of sharply rising Treasury yields.

WPC data by YCharts

Markets expecting stronger economic growth, higher inflation, or a combination of both pushed the yield on 10-year notes 27.9% higher since the middle of last September. Every time yields on super-safe, government-backed Treasuries rise, reliable dividend stocks become less attractive.

Better than it looks

W.P. Carey reported adjusted funds from operations (FFO), a proxy for earnings, that reached $1.18 per share during the third quarter of 2024. That was only 12% less than it reported in the previous year period, which ended a month before it spun off Net Lease Office Properties (NYSE: NLOP) into a new entity.

In 2023, W.P. Carey didn't slash its payout. It lowered it by 19.7% to $0.86 per share. Investors also received new shares of Net Lease Office Properties and the new shares pay a dividend. In other words, this REIT has treated its shareholders much better than a chart tracking its dividend payout suggests.

In 2024, the REIT raised its payout four times to $0.88 per share and steady raises are most likely in its future. FFO is sufficient to support future raises plus its portfolio is expanding.

In 2024, the REIT invested $1.6 billion into primarily single-tenant warehouse and industrial properties. When reporting third-quarter results, management told investors to expect adjusted FFO to land in a range between $4.65 and $4.71 per share for 2024. That's more than enough to support a dividend payout currently set at an annualized $3.52 per share.

A buy now?

W.P. Carey's earning enough now to support dividend payout raises, and it's likely to earn significantly more in 2025 and subsequent years. Last year's investments in new income-generating assets including single-tenant warehouses and industrial properties are likely to boost FFO even further.

Despite a dividend cut in 2023, the REIT is standing on solid ground. It finished the third quarter with enough liquidity to keep growing its portfolio without issuing new shares.

An already large portfolio means it won't be the fastest-growing dividend stock. With an ultra-high yield at recent prices, this stock's payout doesn't have to rise very fast to provide heaps of passive income. Adding some shares to a diverse portfolio now looks like a smart move for most income-seeking investors.

Should you invest $1,000 in W.P. Carey right now?

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.