Stock market sell-offs are no fun if you are already fully invested. However, they are opportunities for those who have money to bet. That’s why I always try to save something cash money standing on the sidelines so I’m ready to profit if Wall Street collapses.
I also like a watchlist of stocks that I know I want to buy if they ever fall to more attractive levels, and Real estate income (NYSE: O) And WP Carey (NYSE: WPC) are currently at the top of that list. These real estate investment funds (REITs) already offer a huge dividend yield. However, they will probably become even more attractive during the next market crisis.
A model of consistency
Realty Income’s dividend yield at the current share price is over 5%. That’s several times higher than the S&P 500‘S average dividend yield, which is now below 1.4%. This monthly dividend payer has a great track record when it comes to increasing its payouts: recently delivered its 108th consecutive quarterly report increase and the 127th increase since the IPO in 1994.
The diversified REIT owns a portfolio of retail (74.4% of rent), industrial (14.5%), gaming (3.3%) and other (2.8%) properties, which it leases under triple net lease agreements with high-quality tenants in sustainable industries. That lease structure makes tenants responsible for all operating costs of a property, including routine maintenance, building insurance and property taxes.
Meanwhile, Realty Income’s typical tenants operate in businesses that are resilient to the impact of both recessions and e-commerce competition, such as grocery chains, convenience stores and pharmacies. These functions provide Realty Income with stable rental income.
The REIT pays out about three-quarters of its steady cash flow to investors in dividends, giving it a large cushion while also allowing it to retain a significant amount of cash with which to expand its portfolio of income-producing properties.
Realty Income believes it can grow its customized funds from its operating activities (FFO) by about 4% to 5% per year. That should support continued growth in the high-yield dividend.
Back to Rise After a Reset
WP Carey shares many similarities with Realty Income. It is also a diversified REIT that enters into triple net lease agreements with its tenants. However, it focuses more on industrial and warehouse properties (64% of rent), with the remainder coming from retail (21%) and other properties (15%). WP Carey also has a portfolio of operational self-storage facilities.
The company focuses on owning operationally critical commercial real estate. Because these properties are critical to their tenants, they typically pay rent on time and renew their leases at market rates. WP Carey’s leases also typically have built-in escalations that increase the rent at a fixed rate or a rate linked to inflation. Rents rose at an annual rate of 2.9% in the second quarter, much faster than the approximately 1% annual rental growth Realty Income Expects This Year.
WP Carey aims to pay out less than three-quarters of its steadily rising rental income through dividends. At the current share price, the dividend yield is about 5.5%. The REIT aims to grow its dividend at about the same rate as its adjusted FFO. Although it cut its dividend by almost 20% late last year following its strategic decision to exit the office sector, it has already increased its payments twice in 2024 (albeit by small amounts)The REIT is using the cash flow it retains and its strong financial profile to expand its portfolio, which should grow its rental income and dividends.
Supercharged revenue streams
Real Estate Income and WP Carey already offer large dividend yields, supported by high-quality real estate portfolios that generate stable rental income. Those payouts should rise steadily in the future as REITs expand their sustainable portfolios.
However, their stock prices are likely to fall during a market sell-off, making a downturn a good one time to lock in an even higher dividend yield. So if you haven’t done so already, now is a good time to build up a little cash reserve. Then you can add these dividend stocks to your watchlist so that you will be able to Increase your return potential by buying stocks after the next sell-off.
Should You Invest $1,000 in WP Carey Now?
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Matt DiLallo has positions in Realty Income and WP Carey. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.
2 Supercharged Dividend Stocks to Buy in a Stock Market Sell-Off was originally published by The Motley Fool
