High yields attract dividend investors like flames attract moths — but if you’re greedy, you can get burned. And in today’s low-yield world, you need to look at out-of-favor areas to find generous yields. However, if you are careful you can find a good balance between risk and reward. That’s the case with real estate investment trust (REIT) W.P. Carey (NYSE:WPC) and international energy giant Total (NYSE:TOT). Here’s what you need to know.
1. Balance is the key
W.P. Carey is a real estate investment trust that’s focused on owning single-tenant properties where the tenants are responsible for most of the operating costs of the assets they occupy. This is what’s known as a “net-lease” model. Equally important, the contracts in this space are normally fairly long. W.P. Carey’s average lease term is over 10 years and come with built-in rent increases. It’s generally considered a fairly low-risk business model in the REIT sector.
But W.P. Carey takes things a little further, by layering portfolio diversification on top of the net-lease approach. Its portfolio spans the industrial (24% of rents), office (23%), warehouse (23%), retail (17%), and self storage (5%) sectors, with a broad “other” category making up the difference. Further, it generates around 37% of its rents from outside of the United States. This is a level of diversification that few REITs can match.
That helps explain how W.P. Carey has been able to increase its dividend every year since its 1998 IPO. That’s over two decades. And the yield is a generous 5.8% today, notably above the REIT average of 3.8% using Vanguard Real Estate ETF as a proxy for the sector. Even in the face of the global pandemic, W.P. Carey’s ability to collect the rent it is owed hasn’t really been impacted — setting it apart from many of its peers, which have struggled at times to collect even half of their rent rolls. If you are looking for a high yield from a relatively safe investment, W.P. Carey should be on your short list.
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