The Best Dividend Paying Stock You’ve Never Heard Of
January 10, 2019
Want to earn safe dividends and big capital gains for decades?
If your answer is yes, I encourage you to learn about the wealth-creating magic of “sale-and-lease-back” transactions. Specifically, the way WP Carey (NYSE: WPC) does them.
WP Carey is the leader in sale-and-lease-back transactions of major commercial buildings, from administrative to distribution and even retail properties in the US and strategically around the world.
Sale-and-lease-back deals are an innovative means for companies that own real estate to liquefy it, releasing cash and capital on their balance sheets for other, more productive uses. And WP Carey is happy to benefit when other companies do this.
The deals that WP Carey do typically go like this. Say Walmart (WMT) has a distribution center that it owns. Rather than let it sit there on the company’s balance sheet, it will sell it to WP Carey and lease it back.
Walmart gets cash freed up for further business development and benefits from the tax deductions of lease payments made to WP Carey each year.
WP Carey gets a quality property from a known company and turns around and books what’s known as a triple-net lease, as the underlying tenant—in this case Walmart—pays all the expenses of the property, from maintenance to utilities and taxes.
What’s the end result? Well, during times of business struggles, the company gets good prices on its deals, and later during more flush times it can lease the properties at higher rates and gain the appreciation of the underlying property values over time. They’ve been doing this for decades—first in private placements, and then as a publicly traded company.
WP Carey is set up as a real estate investment trust (REIT). As such, it pays little to no corporate taxes as it passes through the bulk of its profits to shareholders. And in turn, thanks to the Tax Cuts & Jobs Act of 2017, individual investors in the US get to deduct 20% of the dividend distributions from their taxable liabilities, making the dividends even more valuable on an after-tax basis.
As noted above, it has a great collection of properties from major corporations and even governments, including our own.
Its property leases continue to generate ample revenues for shareholders. The underlying return on its funds from operations (FFO) is at a nice 16.50%, and in turn, that fuels the return on shareholder equity of 9.30%.
It also pays a very nice dividend, currently running at $1.03 a share, which has been rising for the past five years alone at an average annual rate of 3.16%. And those dividends have been rising quarter after quarter for many, many years, making WP Carey a true Dividend Aristocrat in the market.
The shares generating a return of 50.74% over the past five years, for an average annual equivalent return of 8.55%. And for the turbulent past 12 months, the company came through with a positive return of 7.47%. This is just a snapshot of the long-haul dependable performance, as the past twenty years have generated a return of 1,276.90%.
And yet, it is still a value at a mere 2.38 times its underlying book of properties and related net assets. With a current dividend yield of 6.08%, WP Carey is a great stock for current and rising income with gains to come, all thanks to sale-and-lease-back transactions.