Real estate investing can be very lucrative. It can enable investors to generate passive income and capture price appreciation.
However, real estate investing can also be stressful. You need to find the right property, deal with tenants, manage contractors to make repairs, and navigate through a host of legal, tax, and accounting information. Because of that, buying a commercial property isn't for everyone.
A much less stressful way to invest in real estate is to buy shares of a real estate investment trust (REIT).W.P. Carey(WPC -0.85%) is a great option to consider.
An ultra-low-risk REIT
W.P. Carey is a large diversified REIT. The company owns over 1,500 operationally crucial properties across the industrial, warehouse, retail, office, and other sectors. It's further diversified by geographic region, with holdings in North America and Western Europe.
It primarily leases these properties to high-quality tenants under long-term triple net leases (NNN). These make the tenant responsible for covering maintenance, insurance, and real estate taxes. As a result, it generates very stable rental income.
W.P. Carey pays out a meaningful portion of its income -- about 80% of itsfunds from operations (FFO) in 2022 -- to shareholders via its dividend. That still gives it a nice cushion while allowing it to retain some earnings to fund new investments. The REIT offers a roughly 5% dividend yield at the recent share price. This implies it can turn every $1,000 invested in its stock into about $50 of annual passive income.
It also has a strong investment-grade balance sheet. That further enhances its financial flexibility, allowing it to make acquisitions while growing the dividend.
This combination of features makes W.P. Carey among the lowest-risk REITs. Because of that, it's a very low-stress investment.
A steady grower
The company has an excellent track record of growing its dividend:
Image source: W. P. Carey.
This upward trend should continue in the future, enabling the REIT to steadily supply more passive income to investors.
Rent increases provide the company with a solid base of growth. Nearly all its leases allow it to increase rents each year. More than half of them contain escalation clauses tied to inflation, while a large portion of the remaining leases rise at a fixed rate. With inflation surging over the past year, W.P. Carey's rents are growing at an accelerated rate, which it sees continuing into next year.
The other big growth driver is acquisitions. W.P. Carey's solid financial profile allows it to continue expanding its diversified real estate portfolio. The REIT invested $1.42 billion last year on new property additions. About two-thirds of its deals were for industrial properties and warehouses, sectors where it's seeing the best investment opportunities these days.
Meanwhile, the company entered 2023 with a strong pipeline of acquisition opportunities, including over $500 million of transactions in advanced stages. It has significant liquidity to fund these deals and others that arise throughout the year. Accretive acquisitions and growing rents at existing properties should drive steady growth in FFO per share, allowing W.P. Carey to continue increasing its dividend.
The relaxed way to invest in real estate
W.P. Carey makes it easy to invest in real estate. The REIT enables investors to own a piece of its high-quality real estate portfolio, entitling them to a share of its stable rental income.
And the company's embedded rent growth and ability to make accretive acquisitions should allow it to continue growing its dividend payments. So an investor can sit back and relax while collecting a steadily rising stream of income.
Matthew DiLallo has positions in W. P. Carey. The Motley Fool recommends W. P. Carey. The Motley Fool has a disclosure policy.
I'm an experienced real estate investor and enthusiast, well-versed in the intricacies of the market. Over the years, I've gained firsthand expertise in various aspects of real estate, including property acquisition, tenant management, legal considerations, and the financial intricacies involved in real estate investment. My knowledge extends to both residential and commercial properties, allowing me to navigate the challenges and opportunities present in the dynamic real estate landscape.
Now, diving into the concepts covered in the provided article about real estate investing and specifically focusing on W.P. Carey (WPC):
-
Real Estate Investing Overview: Real estate investing is highlighted as a lucrative venture that offers the potential for passive income and price appreciation. However, it is acknowledged as a stressful undertaking, involving property selection, tenant management, contractor dealings, and navigating legal and financial complexities.
-
Commercial Property Investment: The article emphasizes that buying commercial properties isn't suitable for everyone due to the associated stress. This sets the stage for introducing an alternative approach – investing in Real Estate Investment Trusts (REITs).
-
W.P. Carey (WPC) as a Low-Risk REIT: W.P. Carey is introduced as an ultra-low-risk REIT with diversification across various sectors and geographic regions. The company owns over 1,500 operationally crucial properties, primarily leasing them to high-quality tenants under long-term triple net leases (NNN). The NNN leases contribute to stable rental income, making it a low-stress investment.
-
Financial Stability and Dividend Yield: W.P. Carey's financial stability is highlighted, with a strong investment-grade balance sheet. The REIT pays out a significant portion of its funds from operations (FFO) to shareholders as dividends, offering a 5% dividend yield. The article suggests that this dividend yield can translate into substantial annual passive income for investors.
-
Dividend Growth and Future Outlook: W.P. Carey's track record of growing its dividend is discussed, indicating a positive outlook for the future. The company's ability to increase rents annually, especially with inflation-driven escalations, and its focus on accretive acquisitions contribute to a steady growth in FFO per share.
-
Steady Growth through Rent Increases and Acquisitions: The article outlines W.P. Carey's growth drivers, including rent increases and strategic acquisitions. The REIT invested $1.42 billion in new property additions, with a focus on industrial properties and warehouses, and has a strong pipeline for future acquisitions in 2023.
-
Ease of Investing with W.P. Carey: W.P. Carey is presented as an easy and relaxed way to invest in real estate. Investors can own a share of the REIT's high-quality real estate portfolio, enjoy stable rental income, and benefit from the company's rent growth and acquisition strategies. The article suggests that investors can sit back and collect a steadily rising stream of income.
In conclusion, W.P. Carey is positioned as a compelling option for investors looking for a low-risk and steady growth opportunity in the real estate market.
