The dividend stock WP Carey (WKN: A1J5SB ) is currently posting a dividend yield of 5.26% again. Based on the previously announced $1.061 per share and a share price of $80.63, we get this figure. A high level?
Well, let’s put it this way: a higher level. Most recently, the dividend yield on the US real estate investment trust was well below 5%. Meanwhile, it has been 4.8%, or sometimes a bit less.
Anyway, now with a dividend of 5.26% again, there may be quite a few reasons to buy. Let’s look at WP Carey and the general attitude. In terms of valuation, there could well be a solid return potential.
WP Carey: More Than 5.26% Yield!
Of course, WP Carey owns more than 5.26% dividend. Nevertheless, it is a value that may not be so unattractive for an initial entry. However, rising interest rates in the fight against inflation have meant that the share price has recently fallen more sharply. The trend may continue with the US Federal Reserve raising policy rates and the share price will continue to fall accordingly.
However, WP Carey is a real estate investment trust and therefore a company that generates more than just the dividend. For example, the $1.31 that management reported as funds from operations in the second quarter. Based on this value, the price-to-FFO ratio would be around 15.4. A valuation target that can deliver an earnings yield of over 6% per annum. Another key question is whether it would be sufficient. In any case, inflation is slightly higher at the moment.
Nevertheless, WP Carey has pricing power. The Real Estate Investment Trust has hedged 59% of its contracts against inflation, and the price adjustments could take effect in the coming months. The remaining contracts, on the other hand, have contractually defined price adjustments. This means that overall moderate growth is possible, which should mean that the total return should be higher.
However, there is a risk that rising interest rates will partially eat up funds from operations. Total debt is $6.7 billion in net debt. The ratio is still reasonable compared to a balance sheet total of over US$15 billion. However, a focus should be on how interest rates affect the operating basis.
The stock is on the watch list…
At the end of the day, I’m staying on the sidelines with WP Carey at the moment. I like the overall package a lot, and I don’t see the debt as too much of a problem either. However: The weak euro means that we pay a surcharge compared to the US dollar. Subtracting my current margin of safety of 12% puts me back at a sub-5% yield and a price-to-FFO ratio of over 17. Doesn’t look cheap to me though.
Therefore, I am not currently investing in the Real Estate Investment Trust. However, should the fundamental valuation become even cheaper, the initial position would certainly look different.
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Vincent owns shares in WP Carey. The Motley Fool recommends WP Carey.