The S&P 500 index is offering investors a paltry yield of about 1.2%. That's like walking through the desert with no water for a dividend investor looking for high yields.
But don't despair -- there are high-dividend options. You just need to take on a little extra uncertainty, which is why W.P. Carey (WPC -0.45%) has a lofty 6.5% yield and Toronto-Dominion Bank (TD -0.30%) is offering a dividend yield of 5.2%. Here's why both are worth buying and holding for a decade or more, despite some additional risk.
It was a reset, not a cut, at W.P. Carey
When 2024 got underway, W.P. Carey shareholders were greeted with a dividend reduction. Many dividend investors will simply remove companies that have cut their dividends from consideration, assuming that the companies are struggling or facing some kind of material hardship.
Why would they otherwise cut their dividends? The answer in the case of W.P. Carey is for a strategic business reset.
Image source: Getty Images.
In late 2023, W.P. Carey made the decision that the office sector was facing problems so grave that it no longer made sense to slowly exit the space, which at that point made up 16% of rents. Instead, the net lease real estate investment trust (REIT) chose to exit the office sector in one quick move. (A net lease requires the tenant to pay for most property-level operating costs.) That was too large a portion of the rent roll to lose without a dividend reduction.
The quarter after the cut, however, the company raised the dividend. And it increased the payout every quarter since, which is the same quarterly increase cadence that existed prior to the cut. That's why I consider this was a dividend reset, not a cut.
The move was made from a position of strength, not weakness, which the subsequent dividend increases are really meant to signal to Wall Street. Moreover, exiting the office market left W.P. Carey with cash to invest in new assets, which it has started to do and will continue to do through 2025 and, perhaps, into 2026. That will lead to growth.
Investors have every right to be bothered by W.P. Carey's dividend cut. But it's important to understand that it was a strategic move and management is clearly looking to rebuild the 24-year-long streak of dividend increases that it broke when it sold its office properties. With an attractive 6.5% yield, compared to 3.7% for the average REIT, even conservative high-dividend investors should probably be looking at W.P. Carey today.
Toronto-Dominion Bank let everyone down
Toronto-Dominion Bank, known as TD Bank, allowed its U.S. business to be used to launder money. That's a very bad thing and shows that the bank's internal controls were too lax.
U.S. regulators weren't pleased and slapped the company with a huge fine. They're also forcing TD Bank to upgrade its money laundering controls and have placed the bank under an asset cap in the U.S.
None of this is good news, but the asset cap is particularly troubling. Basically, it means that TD Bank's U.S. business won't be allowed to grow until the bank has regained the trust of its U.S. regulators.
TD Bank's large Canadian business isn't affected by any of this, so the financial giant remains on solid ground. In fact, it increased its dividend when it announced fiscal fourth-quarter earnings earlier this month. That was a statement to dividend investors that they could still count on TD Bank to be a reliable dividend stock despite the headwinds it's facing.
That said, 2025 will likely be a very difficult year for the company and its shareholders. Thanks to the asset cap in the U.S. market, management will be making changes to its business that will hurt earnings but free up capital so it can continue to service its customers without interruption.
That's going to take a bite out of earnings. However, it's unlikely that the dividend was increased with the idea that it would just get cut a few months later.
Note that TD Bank made it through the Great Recession without a dividend cut, unlike many U.S. peers, so it seems reasonable that it will survive the current U.S. headwinds it's facing, too. If you can wait for the company to eventually regain regulator trust, you'll be paid a hefty 5.2% dividend yield, backed by a still growing dividend along the way. That's not bad, considering that the average bank is yielding a tiny 2.1%.
Modest extra risk, notable extra yield
There are good reasons to be upset with W.P. Carey and TD Bank. However, if you can look past the negatives, these are both financially strong companies that can pay reliable and growing dividends. You may have to hold your nose when you hit the buy button, but given both companies' high yields, still solid businesses, and recent dividend increases, it's probably going to be worth it.
