3 Reasons to Buy W.P. Carey Stock Like There's No Tomorrow

W.P. Carey (NYSE: WPC) is a leading real estate investor. The real estate investment trust (REIT) owns a diversified portfolio of properties across North America and Europe. Those properties produce very stable rental income, which allows it to pay a lucrative dividend.

The REIT's strategy makes it an excellent long-term investment. Here are three reasons to load up on shares right now.

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A top-notch portfolio

The bedrock of W.P. Carey is its high-quality global real estate portfolio. The REIT primarily focuses on owning operationally critical commercial real estate secured by long-term net leases with built-in rent escalations. Those net leases supply it with very stable rental income because tenants cover all operating costs, including building insurance, real estate taxes, and routine maintenance.

W.P. Carey entered the year with 1,555 properties net leased to 355 tenants with a weighted average remaining lease term of 12.3 years. It has properties across North America (67% of its rent) and Europe (33%).

Its portfolio spans industrial (36% of its rent), warehouse (27%), retail (22%), and other properties (14%). It also owns a portfolio of operating properties (78 self-storage locations, four hotels, and two student housing assets) that generate additional income and are properties not secured by a net lease but usually managed by a third-party.

One thing that stands out about W.P. Carey's portfolio compared to other net lease REITs is that it ties the majority of its rents to inflation (51%). The rest of its properties either escalate rents at a fixed rate (46%) or have another feature like percentage rents (where it gets a percentage of a property's revenue). With inflation still elevated, the REIT is delivering leading rent growth (2.6% same-store growth in the fourth quarter).

A strong financial foundation

W.P. Carey spent much of the past year exiting the office sector. It spun off a portion of its office portfolio to shareholders by creating office REIT Net Lease Office Properties in late 2023. The REIT subsequently sold off the rest of its properties. It also reset its dividend due to the lost income and the desire to retain additional cash to invest in new properties.

The REIT's property sales have helped strengthen its already solid balance sheet. It ended last year with a 5.5 leverage ratio, toward the lower end of its target range in the mid-to-high fives. W.P. Carey also has a dividend payout ratio in the 70%-75% range.

W.P. Carey now has the financial flexibility to grow its portfolio without needing to sell stock to help fund new investments. It expects to invest between $1 billion and $1.5 billion into new properties this year, funded with post-dividend free cash flow, its balance sheet flexibility, and additional asset sales. The REIT plans to sell $500 million to $1 billion of non-core assets, like some of its self-storage operating properties, to fund higher returning net lease investments.

An attractive passive income stream

Despite resetting its dividend at the end of 2023, which ended a quarter-century streak of annual increases, the REIT still offers a very attractive yield of 5.7%. That's much higher than the S&P 500 (1.2%) and the average REIT (around 4%).

One reason W.P. Carey has such a high yield is its low valuation:

Data source: Google Finance and company information.

As that table shows, W.P. Carey trades at a much lower valuation multiple compared to some other well-known net lease REITs, which is why it has a higher yield.

W.P. Carey already started rebuilding its dividend following the reset in late 2023. It increased its payout every quarter last year, growing it by 2.3%. It will likely continue to steadily raise its payout in the future as it continues to make accretive new investments that grow its rental income.

A high-quality, high-yielding dividend stock

W.P. Carey owns a high-quality real estate portfolio that produces steadily rising rental income. It also has a high-quality financial profile, which allows it to invest in additional income-generating properties. Despite its high-quality features, the REIT has a lower valuation than its peers, which has it offering a higher-yielding dividend that it should continue rebuilding in the future. These factors make it a great stock to buy without hesitation right now.

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Matt DiLallo has positions in Net Lease Office Properties, Stag Industrial, and W.P. Carey. The Motley Fool recommends Stag Industrial. The Motley Fool has a disclosure policy.