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Searching For Healthy Profits In The Stock Market


dividend reits delivering safety


By the Sick Economist 


REITs have been a very popular income investment over the last several decades. As interest rates have generally ranged from ‘”low” to “microscopic” since 2008, many income oriented investors turned to Real Estate Investment Trusts to provide a steady and growing income. In fact, REITS, as a sector have provided double digit annual returns at least seven different times since 2008. Not too shabby considering that most bonds only paid interest rates between 3 and 4% during those years.

But today the picture is somewhat less clear. Interest rates have risen sharply. This has negatively effected certain real estate investments across the economy; office space and certain residential apartment investments have been hit particularly hard. Additionally, now REITS have competition. A very safe, steady bond yields somewhere between 4 and 6%, so is it still worth it to take a little extra risk by investing in the REIT sector?

As usual, the answer is “maybe.”  It depends on the REIT. For some, higher interest rates have been an inconvenience rather than a disaster. Others have barely felt any effects at all. Below find three Real Estate Investment Trusts that continue to pump out rich income for their investors, and continue to offer better prospects than just a Treasury note or a plain vanilla corporate bond.


1. W.P. Carey (WPC)

W.P. Carey is one of the safest REITs due to its substantial stock market capitalization($12.39 billion), diversified portfolio across industrial, warehouse, office, retail and self-storage properties, and conservative financial profile with low leverage and an investment-grade credit rating. Its net lease focus provides stable rental income.

There are a few specific aspects of W.P. Carey’s business that should help you sleep well at night. First, the REIT has a diversified portfolio that should protect it from downturns in any one specific industry. 35% of the properties are in the industrial sector, 28% are in the warehouse sector, and 21% are in the retail sector. 15% of the REIT’S properties fall into other categories. W.P. Carey boasts 335 different tenants, and its top ten tenants make up just 20% of the REIT’S rent collection. This diversification means that it would take an enormous general economic downtown to damage the REIT’s cash flow.  The REIT actually cut it’s dividend at the beginning of 2023, but that was just as a result of management’s decision to exit the office space market altogether. Potential investors today can see W.P. Carey as a company that has already “de-risked” itself by getting out of America’s shakiest real estate sector.

The company has  also been prudent in managing it’s debt. Currently the company carries $7.58 billion in debt, compared to $8.68 billion in equity. This gives the company a debt to equity ratio of .87. This ratio has actually declined in recent years, from as high as 1.18 in 2016, to a recent high of .96 in 2021, to just .87 today. Basically, as interest rates have gone up, carrying debt has become more burdensome, so W.P. Carey has reduced it’s debt. The fact that management has already handled this situation means more safety for today’s investor.

W.P. Carey’s proactive decision to refocus it’s portfolio away from the office sector has left the company with a robust, stable cash flow picture. The company recently reported quarterly Funds From Operation, (The gold standard measurement of REIT cashflow) of $1.14 per share. This would equate to roughly $4.56 per year. Currently, the company’s 6.23% yield equates to an annualized cash payment of just $3.46. So this means that the company should have no trouble maintaining its dividend, even if the economy stumbles into hard times. W. P. Carey’s management team confronted the office market risk head on, and decided to take definitive steps to set the company up for future growth. It’s this expected future growth that makes W.P. Carey’s 6.23% yield more appealing than bonds. Additionally, a solid industrial portfolio with a diverse base of tenants should provide a level of inflation protection that most bonds can’t match.


2. Realty Income (O)

Realty Income is widely regarded as one of the safest net lease REITs. It has an Aa3/A- credit rating from major agencies, a conservative payout ratio around 80% of adjusted funds from operations, and a diversified portfolio of over 15,000 properties leased to high-quality tenants in 89 separate industries.  While 2023’s rapidly increasing interest rates did cause the stock price to go down, today’s higher interest rates are unlikely to hurt ongoing cash flow distribution to shareholders. The company boasts a debt to equity ratio of just .6472, which has actually been going down over the last few years (the ratio was .804 in 2019). This means that, just like W.P. Carey, management has reacted swiftly and prudently to the change in interest rates environment, and the company should have no problem managing it’s debt moving forward. 

Realty Income’s current payout and future payout prospects demonstrate why some income investors would prefer to own a good REIT as opposed to a simple corporate bond. In 2014, Realty Income paid $1.94 in annual dividend. In 2023, that number had grown to $3.05.  You just don’t get that kind of steady, reliable income growth with bonds. Additionally, since the REIT has such a broad assortment of properties in the USA and Europe, it may well serve as a solid hedge against inflation. The value of the properties often rises along with inflation. You can’t say that with most bond holdings.


3. Prologis (PLD)

Prologis could be described as the “perfectly positioned intermediary” and largest REIT in the warehouse space with a $90 billion market cap. Its focus on ‘in-demand” logistics properties leased to creditworthy tenants, along with its size and investment-grade rating, make it a relatively safe REIT investment.  The company boasts more than 6,700 different clients, most of whom use it’s well positioned warehouses to grow their E-Commerce businesses. Around the world, E-Commerce is expected to continue growing at a blistering rate. Some estimate that the annual growth rate could be as high as 9.49% per year, leading total global e-commerce to grow from $4.1 Trillion in 2024 to $6.4 Trillion in 2029. All of those goods need to be warehoused and shipped. Given Prologis’s current dominance in the warehousing space, shareholders should benefit greatly. 

Today’s 3.67% yield is well supported. In 2023, the company’s core Funds From Operations came in at $5.10 per share. But the payout to shareholders was just $3.48. Much like W.P Carey above, this means that a real catastrophe would have to befall the company before they had a hard time maintaining their dividend. In fact, a shareholder could reasonably hope for big growth in the future. The company has nearly tripled it’s dividend from $1.32 a share in 2014 to $3.48 in 2023. With global E-Commerce numbers growing like wildfire, there is no reason that Prologis couldn’t do it all over again this decade.


In the world of investment, there are no promises, only probabilities.  These three Real Estate Investment Trusts are highly likely to survive any surprise market stresses and continue to reward shareholders over time. They are also very likely to provide income growth and inflation protection that bonds simply can’t match. If you like real income growth, real estate is a good place to look.

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