Realty Income vs. W.P. Carey: Which REIT Offers Better Growth Potential?

Discover why Realty Income is a popular choice among dividend investors and why W.P. Carey may outpace it in earnings growth by 2025. This article explores the strengths and weaknesses of both real estate investment trusts (REITs) to help you make an informed decision.

Understanding Realty Income

What is Realty Income?

Realty Income is a leading net lease REIT known for its extensive portfolio and reliable dividend payments. Here are some key features:

• Property Portfolio: Realty Income owns over 15,600 single-tenant properties across North America and Europe.
• Tenant Responsibility: Tenants are responsible for most property-level expenses, reducing the REIT's operating risk.
• Asset Diversity: The portfolio includes retail, industrial, and unique properties like casinos and data centers.
• Attractive Dividend Yield: Realty Income boasts a 5.8% dividend yield, appealing to income-focused investors.

Growth Prospects

Despite its impressive portfolio, Realty Income's growth may be limited:

• Projected Growth: For 2025, Realty Income anticipates adjusted funds from operations (FFO) growth between 0.7% and 2.2%. This modest growth may deter some investors seeking higher returns.

Enter W.P. Carey: A Compelling Alternative

What Makes W.P. Carey Stand Out?

W.P. Carey is the second-largest net lease REIT and presents several advantages:

• Market Cap: With a market cap about a quarter of Realty Income's, W.P. Carey has more room to grow.
• Higher Dividend Yield: W.P. Carey offers a 6.2% dividend yield, making it an attractive option for investors looking for income.
• Diversification: Similar to Realty Income, W.P. Carey holds a diverse range of industrial and retail properties in North America and Europe.

Growth Potential for 2025

W.P. Carey's growth outlook is significantly more promising:

• FFO Growth Forecast: Management expects adjusted FFO growth between 2.5% and 4.5% in 2025. At the lower end, this is three times faster than Realty Income's projected growth.

Pros and Cons: Realty Income vs. W.P. Carey

Realty Income: Pros and Cons

Pros:

• Reliable dividend payments and a strong track record.
• Extensive and diverse property portfolio.
• Low default risk due to a large number of tenants.

Cons:

• Slower growth potential compared to smaller REITs.
• Limited upside in earnings growth for 2025.

W.P. Carey: Pros and Cons

Pros:

• Higher dividend yield and potential for faster growth.
• Strong diversification across various sectors.
• Recent strategic moves position it well for future investments.

Cons:

• Recent dividend cut may concern some investors focused on consistency.
• Transitioning from a struggling office sector could introduce volatility.

Conclusion: Which REIT is Right for You?

Both Realty Income and W.P. Carey offer unique advantages for investors. If you prioritize dividend consistency and a proven track record, Realty Income might be your best bet. However, if you’re looking for higher growth potential and a more attractive yield, W.P. Carey could be the smarter choice.

Ultimately, your decision should align with your investment strategy and risk tolerance.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always do your own research or consult a licensed financial advisor before making investment decisions.