If you’re looking for stocks that can produce heaps of passive income, you want to turn your attention toward a pair of beaten-down real estate investment trusts. W.P. Carey (NYSE: WPC), and Realty Income (NYSE: O) are two highly reliable dividend payers that have been beaten down to near 52-week lows.
The Federal Reserve lowered its target interest rate a full point in 2024, but bond traders aren’t reading this message as you probably expect them to. Markets expecting a combination of stronger economic growth, higher inflation, and rising debt levels pushed yields on 10-year Treasury notes up by nearly 19% over the past three months.
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10 Year Treasury Rate data by YCharts
When ultrasafe Treasury yields rise, shares of slow but steady dividend growth stocks lose some of their luster. As a result of rising Treasury yields, shares of W.P. Carey and Realty Income have fallen enough that they offer an average yield above 6% at recent prices.
1. W.P. Carey
W.P. Carey is a real estate investment trust with hundreds of tenants and 1,430 properties. Shares of the REIT have been under pressure since it spun off its office portfolio into a new company in 2023.
This REIT lowered its dividend in 2023 to compensate for a lack of office property rental revenue. A company with a declining stock price that is near a 52-week low now has raised its dividend yield to a level that’s hard to ignore.
Income-seeking investors who buy shares of W.P. Carey at recent prices can look forward to a 6.5% yield. They can also expect significant dividend raises in the near term. The company raised its payout four times last year and is in a position to raise it even further. Funds from operations (FFO), a proxy for earnings used to evaluate REITs, reached $5.26 per share during the 12 months ended September 2024. That’s plenty more than it needs to maintain a dividend payout currently set at $3.52 annually.
The company boasted a 98.8% occupancy rate at the end of September and an average lease term of 12.2 years. Rent raises linked to inflation are already written into its leases, and its portfolio is one of the industry’s most diversified. W.P Carey’s biggest tenant is responsible for just 2.7% of total annualized base rent. Investors who buy shares of this REIT have a good chance to receive rising dividend payments throughout their retirement years.
2. Realty Income
Shares of Realty Income are down by about 15% over the past three months. At recent prices, it offers a 6% yield and convenient monthly payments.
Realty Income’s stock price beat-down wasn’t due to a dividend cut. The net lease REIT has raised its payout every quarter for over 27 years.
Investors can look forward to more predictable dividend payout raises in the near term. During the 12 months that ended last September, FFO came in at $3.89 per share. That’s a bit more than this REIT needs to meet a dividend obligation currently set at $3.168 annually.
Realty Income focuses on retail and industrial properties that are resilient to recessions. Dollar General and Walgreens are its two largest tenants, but each is responsible for just 3.3% of annualized rent.
Through good economic times and bad, dollar stores and pharmacies tend to perform about the same. As a net lease REIT, Realty Income’s cash flows are the same whether its clients outperform or they earn just enough to pay rent. With a high yield to start and the means to produce steady dividend growth for many more years, this is a great stock for most income-seeking investors.
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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.