Turnaround situations can be very risky, but not in all cases. That’s the big story when you look at Real Estate Investment Trust (REIT) W. P. Carey (NYSE:WPC) and Canadian financial giant Toronto Dominion Bank (NYSE:TD). Both high-yield stocks have fallen on hard times, but neither is facing a situation that should lead to their ultimate demise.
There are even good reasons to think that better times will come for both of them. If you have $500 or even $5,000, you should take a look at it today while Wall Street is still down on their stocks.
As 2024 kicked off, WP Carey shareholders were greeted with a cut in the quarterly dividend, which dropped from about $1.07 per share to $0.86. That cut came just as the REIT would have made 25 consecutive annual dividend increases, so it likely came as a bit of a shock to some investors.
Don’t let this dividend cut deter you from buying WP Carey. It was truly a reset that positioned the company for a better future. At the end of 2023, WP Carey made the difficult choice to exit the office sector in one quick step instead of slowly reducing its exposure as it had done for years.
The reason for the change in tactics is that the office sector is currently facing significant headwinds due to the work-from-home trend that took off during the COVID-19 pandemic. This decision likely saved investors from years of slow and steady depreciation as office buildings purchased years ago were sold at a loss.
The move also strengthened WP Carey’s overall portfolio, which now focuses on industrial, warehouse and retail properties. These are areas that are likely to be more attractive than office buildings in the long term. And office departures left WP Carey with material liquidity (in the form of cash and lines of credit) to work on buying more of the attractive assets it is now focusing on.
All this suggests that growth will pick up in 2025, as it will take some time for management to put the available cash to work.
The strong opportunity ahead is highlighted by the fact that the dividend started growing again the quarter after the reset and has essentially returned to the same quarterly growth rate as before the reset. If the dividend reset had been done from a position of weakness, management would not have started increasing the payout so quickly.
If you think in terms of decades and not days, WP Carey’s 6.2% dividend yield is an attractive opportunity for a low-risk turnaround.
Toronto-Dominion shareholders have also been hit hard lately thanks to a money laundering case in the U.S. division. Regulators have fined the bank, required it to improve its internal controls and placed the bank under an asset limit.
It’s a black eye for Toronto-Dominion. And 2025 will be a difficult year as the bank makes the changes necessary to adapt to the regulatory scrutiny it faces. Investors are disgruntled, as you might expect, and the stock is in the doghouse. The dividend yield is currently at a historically high 5.1%.
The short-term problem is that an asset ceiling effectively prevents its U.S. business from growing until TD Bank can address regulators’ concerns. It could easily take a few years to regain the confidence the bank has lost. While TD Bank’s large and successful Canadian operations are unaffected by all this, the US is said to be the company’s growth engine.
But using the average bank shares SPDR S&P Bank ETF as a benchmark for the sector, it yields just 2.1%. Meanwhile, TD Bank remains financially strong and seems unlikely to cut its dividend (in fact, it has only increased its payout by 3%).
If you don’t mind earning a return more than twice the bank average while TD Bank tackles the money laundering problem, you might consider adding this to your portfolio. The balance between risk and return here appears to be tipping in favor of patient, long-term income investors.
There is no such thing as the perfect company or investment. Even well-managed companies go through temporary tough times, and that’s exactly what seems to be the case with WP Carey and TD Bank. If you can tolerate some short-term uncertainty, taking no for an answer – while other investors are fleeing – could give you a lofty income stream and the opportunity for solid long-term capital growth.
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*Stock Advisor returns December 9, 2024
Reuben Gregg Brewer holds positions at Toronto-Dominion Bank and WP Carey. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
2 No-Brainer Dividend Stocks to Buy Now for Under $500 was originally published by The Motley Fool
