Companies with a higher dividend yield are generally riskier. Usually yes some issues that have weighed on their valuations and are putting pressure on them upwards their dividend yield. These problems can sometimes cause these companies to cut or suspend their dividends.
However, their payouts become more sustainable as they solve their problems. That is currently the case with W. P. Carey (NYSE:WPC) And EPR properties (NYSE: EPR). The real one Estate Investment Trusts (REITs) have had to cut their dividends in recent years as a result of some problems with Certainly types of property they owned. They have addressed these problems by paying out their large dividends a lot of more sustainable foundations. They are now in an excellent position to generate sustainable and growing dividend income for the next decade or more.
Build back better
WP Carey was an elite dividend stock until last year. It had increased the payment every year for a quarter century. However, the headwinds that the office sector has faced since the pandemic weighed on that part of the portfolio. That led to the REIT make the strategic decision to leave the office sector. As a result, it has adjusted its dividend level to reflect lower profits and a desire for a more conservative dividend payout ratio. It lowered the rate from about 80% at the time to a target range of 70%-75%.
Even with that cut, the diversified REIT still offers a very high dividend yield of almost 6%. That payout is much more sustainable because the company has a stronger portfolio and financial basis. It uses proceeds from office sales to invest in properties with better long-term fundamentals, such as industrial real estate. It also used the sales to strengthen the financial base. Are leverage ratio is currently below the target range in the mid-to-high fives of 5.4.
WP Carey has already started scaling back its dividend, raising it three times this year. It expects to continue growing its dividend going forward at approximately the same rate as it increases its adjusted funds from operations (FFO). FFO should increase as rents rise and acquisitions are made. With a much more sustainable portfolio and balance sheet, WP Carey is well-placed to deliver a stable and growing dividend over the next decade.
Come back stronger
EPR Properties has also faced pandemic-related headwinds in recent years. The REIT focuses on owning experiential real estate such as movie theaters, food and gaming venues and other attractions. Many of the properties had to close during the pandemic, affecting tenants’ ability to pay rent. That forced the REIT to suspend its dividend until things started returning to normal.
The company reinstituted the dividend at the end of 2021, setting the payout at a lower level than pre-pandemic levels. This allowed it to maintain additional cash flow to increase its financial flexibility. This came in handy last year, when one of the theater tenants went bankrupt.
EPR Properties has reduced its exposure to the theater industry in recent years. It has sold a number of vacant properties and used its financial flexibility to diversify into other experiential real estate sectors. For example, it sold $56.5 million worth of properties this year, including four theaters for $10.3 million in the second quarter, for a profit of $1.5 million. The REIT used that money and other financing sources to invest $132.7 million in new experiential real estate acquisitions and custom development and redevelopment projects in the first half of this year.
The improved health of EPR Properties’ portfolio has allowed the REIT to increase its dividend several times in recent years. Currently it yields almost 7%. Immediately stronger portfolio and a solid financial foundation, the company should be able to continue expanding its portfolio and dividend in the coming years.
With their past problems, these dividends should be sustainable for years to come decade
WP Carey and EPR Properties experienced a number of pandemic issues that ultimately forced them to downsize their dividends. However, they have addressed these issues and are building a lot of more sustainable companies. They should now be able to continue paying and growing their high yield dividends for the next decade. That makes them both great income stocks to buy and hold for the future terribly long term.
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Matt DiLallo has positions in EPR Properties and WP Carey. The Motley Fool recommends EPR Properties. The Motley Fool has a disclosure policy.
2 Ultra-High Yield Dividend Stocks to Buy and Hold for Ten Years Originally published by The Motley Fool
