Down 33.6% This Year, WPC Stock Looks Compelling
The current market environment is rocky as the 10-year bond yield approaches five percent (and its highest point in 16 years, which it reached prior to the 2008 subprime mortgage crisis).
With the threat of high interest rates lasting longer, perhaps into 2025, stocks have been taking a licking. But instead of running for the exits, investors should realize there are still compelling opportunities in the stock market, including proven dividend payers.
That’s the situation with WP Carey Inc (NYSE:WPC), one of the largest net lease real estate investment trusts (REITs). The company, which recently celebrated its 50th anniversary, has a market cap of $11.1 billion.
The REIT has a diverse portfolio of high-quality, operationally critical commercial real estate. Its holdings include 1,475 net lease properties representing about 180 million square feet, along with 85 self-storage operating properties. Its clients comprise single-tenant, industrial, warehouse, and retail properties. (Source: “Corporate Overview,” WP Carey Inc, last accessed October 5, 2023.)
High interest rates have been negatively affecting REITs due to the high debt on their balance sheets. Investors’ concerns about this issue have battered WP Carey stock. Its price is down by 33.6% in 2023 (as of this writing).
To try to alleviate this situation, amid the current macroeconomic backdrop, WP Carey plans to spin off its 59 office properties into a new publicly traded REIT, Net Lease Office Properties. Shares of the new company would trade under the stock ticker NLOP. (Source: “W. P. Carey Announces Strategic Plan to Exit Office,” WP Carey Inc, September 21, 2023.)
The assets being spun off into Net Lease Office Properties would account for about 10% of WP Carey’s annualized base rent. This move could generate a big return for WP Carey.
In the meantime, patient investors can collect a nice stream of dividend income from WPC stock.
WP Carey Stock at 52-Week Low
WPC stock’s price has been hemorrhaging lately. On January 30, it traded at $85.94 per share. On October 4, it traded at a 52-week low of $51.44.
WP Carey Inc’s stock chart offers a somewhat bleak picture for the immediate term, but aggressive, contrarian, long-term investors could do well if the macroeconomic environment improves.
The below chart shows WP Carey stock trading below its 50-day moving average (MA) of $63.64 and 200-day MA of $72.71. The chart also shows WPC stock trading in a death cross pattern, a bearish technical crossover formation that appears when a stock’s 50-day MA breaks below its 200-day MA.
The selling has resulted in an oversold condition. While WP Carey stock’s technical picture is bearish, patient investors can enjoy the stock’s dividends and wait for a potential turnaround in its share price.
Chart courtesy of StockCharts.com
WP Carey Inc Generates High Free Cash Flow & Profits
WP Carey’s revenues advanced in three of the last four years—by double-digit percentages. The company generated a record $1.48 billion in 2022, up by 218% since 2018. Its revenue compound annual growth rate (CAGR) for the past five years is a decent 13.9%.
Analysts estimate that WP Carey will grow its revenues by 16.4% to $1.72 billion in full-year 2023 and by a further 0.9% to $1.74 billion in 2024. (Source: “W. P. Carey Inc (WPC),” Yahoo! Finance, last accessed October 5, 2023.)
| Fiscal Year | Revenues | Growth |
| 2018 | $885.73 Million | N/A |
| 2019 | $1.23 Billion | 39.18% |
| 2020 | $1.21 Billion | -1.9% |
| 2021 | $1.33 Billion | 10.11% |
| 2022 | $1.48 Billion | 11.08% |
(Source: “W. P. Carey Inc.” MarketWatch, last accessed October 5, 2023.)
On the bottom line, WP Carey has been consistently profitable on a generally accepted accounting principles (GAAP)-diluted earnings-per-share (EPS) basis.
Analysts expect that WP Carey Inc will report earnings growth of 32.4% to $3.96 per diluted share for full-year 2023, then report an earnings decline to $3.38 per diluted share for 2024. (Source: Yahoo! Finance, op. cit.)
| Fiscal Year | GAAP-Diluted EPS | Growth |
| 2018 | $3.49 | N/A |
| 2019 | $1.78 | -49.01% |
| 2020 | $2.60 | 46.19% |
| 2021 | $2.24 | -14.04% |
| 2022 | $2.99 | 33.52% |
(Source: MarketWatch, op. cit.)
Moving to its funds statement, WP Carey Inc has consistently generated positive free cash flow (FCF).
FCF is a concern for investors due to its potential impact on dividends, but based on the company’s history, it should be able to continue paying dividends as long as it’s profitable.
| Fiscal Year | FCF (Millions) | Growth |
| 2018 | $401.5 | N/A |
| 2019 | $646.6 | 61.1% |
| 2020 | $594.3 | -8.1% |
| 2021 | $812.9 | 36.8% |
| 2022 | $899.1 | 10.6% |
(Source: MarketWatch, op. cit.)
WP Carey Inc carried debt of $8.6 billion on its balance sheet as of the end of June. High debt is typical of REITs. I don’t see any problems, considering the company’s high profitability and FCF, as well as its $208.0 million in cash. (Source: Yahoo! Finance, op. cit.)
Moreover, the company had a decent interest coverage ratio of 3.9 times in 2022. The following table shows that WP Carey can easily cover its interest expense via its earnings before interest and taxes (EBIT). So, for now, its financial situation is manageable.
| Fiscal Year | EBIT (Millions) | Interest Expense (Millions) |
| 2019 | $566.1 | $233.3 |
| 2020 | $655.3 | $210.1 |
| 2021 | $635.4 | $196.8 |
| 2022 | $845.4 | $219.2 |
(Source: Yahoo! Finance, op. cit.)
WPC Stock Pays Steady & Rising Dividends
WP Carey has paid out dividends for 26 straight years and has increased its dividends for 12 straight years.
WP Carey stock’s July dividend was $1.069 per share, which translates to a current yield of 7.92%. WPC stock’s five-year average dividend yield was lower, at 5.63%, due to the company’s higher historical share price. (Source: “Dividend Information,” WP Carey Inc, last accessed October 5, 2023.)
WP Carey Inc’s payout ratio of 119.4% is high, but high payout ratios are common for REITs. (Source: Yahoo! Finance, op. cit.
The company recently announced an increase to WP Carey stock’s quarterly dividend to $1.071 per share. Given the company’s expected earnings over the next two years, I forecast that WPC stock’s dividends will continue rising.
| Metric | Value |
| Dividend Growth Streak | 26 Years |
| Dividend Streak | 12 Years |
| 7-Year Dividend CAGR | 1.4% |
| 10-Year Average Dividend Yield | 7.2% |
| Dividend Coverage Ratio | 1.2 |
The Lowdown on WP Carey Inc
WP Carey stock has broad institutional ownership, with 1,099 institutions holding 65.0% of its outstanding shares. Company insiders only hold a 1.1% stake in WP Carey Inc, but they bought 28,602 shares over the last six months. (Source: Yahoo! Finance, op. cit.)
The bottom line is that WPC stock is a steady dividend payer, but the macroeconomic backdrop of higher interest rates has hampered its share price. The economic situation will likely improve over time, but as mentioned earlier, investors can collect dividends from WP Carey while they wait for its share price to rise.