Key Points

W.P. Carey owns a diversified portfolio of income-producing real estate. The REIT steadily invests money to grow its portfolio. Its rising cash flow allows it to pay a growing dividend.

Investing money in income-generating assets is an easy way to start making some passive income. The more money you invest and the higher yield you earn on that investment, the more passive income you'll collect.

W.P. Carey (NYSE: WPC) checks the high-yield box. At a nearly 6% yield, the real estate investment trust (REIT) pays about four times the income as the average dividend stock, based on the S&P 500's sub-1.5% dividend yield. It could turn a $5,000 investment into almost $300 of annual passive income at that rate.

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Built for producing income

W.P. Carey owns a diversified portfolio of high-quality, operationally critical commercial real estate across North America and Europe. It has 1,614 properties, encompassing industrial, warehouse, retail, and various other types, secured by long-term net leases with built-in rent escalations. The REIT also owns 78 self-storage locations operated by others under management agreements.

The REIT's net lease portfolio supplies it with stable and and growing rental income. This lease structure requires that tenants cover all of a property's operating expenses, including routine maintenance, real estate taxes, and building insurance. Half of its leases link rents to inflation, while 47% of the remaining contracts raise rents at a fixed rate. The remaining 3% use another mechanism, like a percentage of the property's revenue. As a result, the company's same-property annual base rent tends to rise at a low single-digit rate each year.

W.P. Carey aims to pay out between 70% and 75% of its stable and growing cash flow in dividends. It retains the rest to invest in additional income-generating real estate.

Growing the portfolio and dividend

Rising rental income at its existing properties provides W.P. Carey with a nice growth base. The company complements rent growth by investing money to expand its portfolio.

The REIT has spent the past few years on a major portfolio upgrade. It has sold or spun off its entire office portfolio. It also sold back a portfolio of self-storage properties to the operator and has jettisoned several other non-core properties. W.P. Carey has been recycling this capital back into higher-quality properties with better long-term rent growth potential from net leases with embedded fixed or inflation-linked rents.

Story Continues

W.P. Carey invested $1.6 billion in new properties last year. The company plans to invest between $1 billion and $1.5 billion this year. It has already completed $448.6 million of deals and has another $120 million of development projects on track to wrap up construction this year. Meanwhile, it has several hundred million dollars of potential investments in the pipeline. That gives the company the confidence that it could invest capital toward the high end of its target range this year, with upside beyond the top end if market conditions improve.

The landlord's dual growth drivers should enable it to steadily increase its dividend. While W.P. Carey reset the payment level following its exit from the office sector in 2023, it has been steadily rebuilding the dividend by raising it each quarter. It has increased its dividend by 2.9% over the past year. The company aims to grow its payout at around the same rate as its adjusted funds from operations (FFO), which was up 2.6% in the first quarter compared with the year-ago period.

Easy passive income

Investing in W.P. Carey makes it easy to start making passive income. The REIT owns a diversified real estate portfolio that produces steadily rising rental income. The company also invests money to expand its portfolio, providing it with additional sources of rising rental income. These features enable it to pay a lucrative and growing dividend to shareholders, allowing them to turn cash into passive income.

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Matt 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.

Got $5,000 to Invest? Buying This Nearly 6%-Yielding Dividend Stock Can Turn It Into Almost $300 of Easy Passive Income Each Year. was originally published by The Motley Fool

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