W.P. Carey Inc. REIT (WPC): Big Dividend, Big Risks

Specifically, we ran a regression of WPC’s stock price over the last five years against the US stock market (as measured by the S&P 500 ETF, SPY), 7-10 year Treasuries (as measured by ticker IEF), and Eurozone stocks (as measured by ticker FEZ, except we converted FEZ’s price back to EUR instead of USD). What we found is that all three variable (SPY, IEF and FEZ) were highly significant (t-Stats way above 2) in explaining WPC’s stock price over the last five years. More specifically, as interest rates went up, WPC’s price went down; as Eurozone stocks went up (one third of WPC’s properties are in Europe), WPC’s price went up; and as US stocks went up, WPC’s stock price went up. These factors explained roughly 92% of WPC’s stock price moves over the last five years.

W.P. Carey’s Dividend

WPC’s big growing dividend is what drives many investors to the stock. For reference, the following chart shows the steady dividend payments and increases since September 2000.

And worth noting, WPC just recently announced another dividend increase to be paid on October 14, 2016. Further, WPC is a member of the Nasdaq “Dividend Achievers” index (to qualify as a Dividend Achiever, a company must have increased its dividend payout each year for the last 10 or more consecutive years and meet certain liquidity requirements).

WPC also has a healthy dividend payout ratio. For example, the company generated Adjusted Funds From Operations (AFFO) of $1.24 per diluted share in the most recent quarter, and paid only $0.98 per share in dividends, making the payout ratio only 79%. Further, WPC affirmed its total 2016 AFFO guidance of $5.00 to $5.20 per share. It also maintains healthy investment grade BBB/Baa2 corporate debt ratings from Standard & Poor’s and Moody’s.