The almost dividend aristocrat WP Carey (NASDAQ:AAPL) is a pretty interesting choice. Not only does the top dividend stock have a defensive business model and a strong dividend yield. No, but there is also the prospect of a dividend of around 5%.
But assessing the opportunity and risk also works differently. Let’s consider what is possible in the worst case. Or how low the stock may fall. Except for existential stressors, of course, which are currently not visible and are more based on unpredictable mistakes on the part of management. But as I said, we don’t see that at the moment.
Almost Dividend Aristocrat WP Carey: How Low Can It Go?
Almost yield aristocrat WP Carey is quite attractive in normal operating mode and has a solid, strong yield. Also built-in inflation protection that should deliver stable, moderate growth. In the coming year, the stock will also belong to the circle of aristocratic distributors. All are certain things that, in my opinion, justify at least a slight premium valuation, even if it were to stagnate operationally.
Let’s assume that is the case. Rising interest rates can also lead to poorer comparisons. In that case, and with less operational growth, I think a price-to-FFO ratio of around 10 would be appropriate. My calculation: A price-to-FFO ratio of 8 would be the worst valuation. There is one more point each for the quasi-dividend aristocrat and the inflation protection. But what does that mean now?
The bottom line is that at WP Carey, I see a share price of around US$50 to US$53 as the bottom. Based on the current price level of $88, that means a 40% breakout potential. The question is whether the almost dividend aristocrat can get a corresponding price increase in return. That brings us back to the risk-reward relationship.
Is it deep…?
Ultimately that would be the worst case scenario for me with WP Carey. Honestly, I think that would be an unrealistic scenario for the near-payoff aristocrat. The dividend yield would also be around 8%. However, with the price-to-FFO ratio currently at 16.6, we recognize that the fundamental valuation measure is not a good buy at the moment. On the other hand, I don’t believe there should be another 40% upside potential in the near term.
However, that doesn’t mean you shouldn’t buy the near-dividend aristocrat. The barely 5% dividend is also part of the return, which looks extremely attractive. With only 40% downside I see at worst, I think this may be worth the risk. Although, to be honest, I’d rather wait for a 10% loss before taking a bigger position in this stock.
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Vincent owns shares in WP Carey. The Motley Fool does not own any of the stocks listed.