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400 Million Reasons This Massive High-Yield Dividend Is Heading Higher

W.P. Carey (NYSE: WPC) offers investors an attractive dividend that currently yields over 5%. That’s much higher than the S&P 500‘s 1.4% yield and the roughly 3% average of other real estate investment trusts (REITs). 

But W.P. Carey offers more than a big-time yield. The REIT has steadily increased its high-yield dividend every year since going public in 1998. A big driver has been its ability to steadily expand its portfolio by making acquisitions. The high-yielding REIT has acquired $400 million worth of properties since the first quarter ended, suggesting it should be able to continue growing the dividend.

The wheeling and dealing continues

Those $400 million in properties that the REIT has signed deals for include about $168 million of investments that it expects to close later this year, the bulk of which should happen by the end of July. The diversified REIT maintained its broad investment approach, purchasing industrial, grocery, and lab properties across the U.S. and Europe. 

These deals follow on the heels of the $307.7 million in investments W.P. Carey completed during the first quarter. That pushes the company’s year-to-date total to more than $700 million. This pace has it well on track to achieve its investment-volume target of $1.5 billion to $2 billion this year.

In addition to that steady flow of deals, W.P. Carey is acquiring one of its investment funds for $2.7 billion. The transaction will supply the company with another well-diversified portfolio of net lease properties and some operating self-storage assets. The REIT does plan to sell about $700 million of those assets to help finance the deal so that it can maintain a strong balance sheet to continue expanding.

Adding steadily rising income streams

W.P. Carey’s acquisition strategy provides it with two sources of dividend growth. First, the company focuses on making accretive investments into income-producing commercial real estate. Because of that, its acquisitions should supply it with more income on a per-share basis. In addition to that, it has embedded rent growth because more than 99% of its leases have contractual annual rate increases, with 58% of those raises tied to inflation.

Those contractual rate increases are becoming an increasingly meaningful growth driver as inflation surges. During the first quarter, W.P. Carey’s same-store annual base rent grew by 2.7%. That’s almost a full percentage point higher than its average same-store annual base rent growth last year. So, as it buys more properties, it’s purchasing real estate that should deliver steady income growth in the coming years.

This combination of an immediate income boost from the initial acquisition and steadily rising rental income in future years is helping W.P. Carey grow its adjusted funds from operations (AFFO) per share at an attractive rate. That should enable the REIT to continue increasing its already above-average dividend.

A great option for income-focused investors

W.P. Carey has a knack for acquiring income-producing real estate. Its recent deals to purchase another $400 million of such properties should provide it with more income in the near term, along with steadily rising rents in the years to come. Because of that, the REIT should be able to continue growing its big-time dividend, making it ideal for those seeking passive income.

Matthew DiLallo has positions in W.P. Carey. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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