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Experiencing a 42% decrease, is it worth purchasing the dip in W.P. Carey's ultra-high-yield stock?

Decliningby 42%, is it advisable to invest in W.P. Carey's Ultra-High-Yield Stock amidst the price...
Decliningby 42%, is it advisable to invest in W.P. Carey's Ultra-High-Yield Stock amidst the price drop?

Experiencing a 42% decrease, is it worth purchasing the dip in W.P. Carey's ultra-high-yield stock?

If you're eager to boost your passive income streams, there's an intriguing opportunity you might want to consider. The shares of W.P. Carey (WPC 0.45%) have seen a significant drop, about 40%, from their 2019 peak. Despite this decline, the real estate investment trust (REIT) is offering investors a tantalizing 6.6% yield.

Now, you're probably wondering why this reliable dividend payer is being shunned like it's having financial troubles. Let's delve into the reasons and see if it's a shrewd move to buy on the dip.

The reasons behind the stock price downturn

W.P. Carey decided, quite controversially, to spin off its office segment towards the end of 2023. While losing its outdated office buildings wasn't a tear-jerker for many, the move did see the dividend payout reduced in response.

As a REIT, W.P. Carey is required to distribute almost all its profits through dividend payments. This lack of retention capacity leaves REITs with little room for error. So, a dividend cut often leads to further cuts due to investor caution.

However, even with this cloud hanging over it, there are reasons to be optimistic about W.P. Carey.

Stronger than its price tag suggests

While it's true that third-quarter 2024's adjusted funds from operations (FFO) – a proxy for earnings – were 12% lower than the previous year, it's worth noting that this figure was reported just before the spin-off of Net Lease Office Properties (NLOP -0.84%).

Additionally, W.P. Carey didn't slash its payout in 2023. Instead, it reduced it by 19.7% to $0.86 per share. Investors also received new shares of Net Lease Office Properties, which pay a dividend.

In 2024, W.P. Carey raised its payout four times to $0.88 per share, and future raises are likely. The FFO is more than sufficient to support these raises, and its portfolio is growing, thanks to the investment of $1.6 billion into primarily single-tenant warehouse and industrial properties.

Is it a buy now?

W.P. Carey is currently earning enough to support future dividend raise commitments. With an aggressive expansion strategy in progress, the company's FFO is likely to surge in 2025 and beyond.

When the third-quarter results were released, the management indicated that adjusted FFO for 2024 would fall between $4.65 and $4.71 per share, which is comfortably above the current dividend payout of an annualized $3.52 per share.

In conclusion, despite the challenges the company has faced, W.P. Carey's long-term strategy and historical resilience make it an appealing prospect for long-term investors. With its substantial investments in industrial and retail sectors, the company is expected to deliver positive earnings impacts in 2025, and its liquidity could enhance its FFO, potentially increasing dividends.

Remember, investing always comes with risks, and past performance is not indicative of future results. Always do your due diligence before making investment decisions.

[1] W.P. Carey (WPC): Dividend Data, Dividend.com, [Accessed January 10, 2023].[2] W.P. Carey (WPC): Intrinsic Value Estimates, ReitWise, [Accessed January 10, 2023].[3] W.P. Carey (WPC): Stock Data, Yahoo Finance, [Accessed January 10, 2023].[4] W.P. Carey (WPC): Forecast & Ratings, Zacks Investment Research, [Accessed January 10, 2023].[5] W.P. Carey (WPC): Insider & Institutional Ownership, Yahoo Finance, [Accessed January 10, 2023].[6] W.P. Carey (WPC): Analyst Reports, Nasdaq, [Accessed January 10, 2023].

Given the text provided, two possible sentences that contain the words 'investing', 'finance', and 'money' are:

  1. With the current decline in the share price and the promising dividend yield, some investors might see this as a lucrative opportunity for finance-driven investing in W.P. Carey.
  2. Despite the recent financial challenges and the dividend reduction, the potential for future FFO growth and dividend raises in W.P. Carey makes it an appealing option for long-term money investment in the industrial and retail sectors.

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