Beauty is often in the eye of the beholder, a statement that is particularly true on Wall Street. That's a good setup for a comparison of two real estate investment trusts (REIT) that focus on industrial assets. Is W.P. Carey (WPC -0.47%) a better stock than Rexford Industrial (REXR -0.82%)? It depends on the person doing the comparison. Here's what you need to know.
What does W.P. Carey do?
As a net lease REIT, W.P. Carey's tenants are responsible for most property-level operating costs. Although any single property is high risk, since most have only one tenant, across a wide enough portfolio the risk is pretty low. W.P. Carey owns 1,430 buildings with 346 tenants, so the risk is pretty low here. In addition, it has exposure to both the North American and European markets, further increasing diversification.
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The REIT also adds in property type diversification, with 15% of rents coming from a broad "other" category and 22% from retail properties. The remainder, around 64% of rents, is focused on industrial assets like warehouses and manufacturing facilities. So this is really an industrial focused REIT, but one that has a pretty well diversified mix of assets.
The dividend yield today is around 6.4%. That's high for a REIT and is at least partly a function of a dividend reset made in 2024. In late 2023 W.P. Carey decided to exit the office sector, an area that has struggled very badly since the coronavirus pandemic, and that necessitated a dividend reduction. But the very quarter after the cut, and every quarter since, the dividend has been increased. That's why it was really a reset, noting the cadence before the reduction was quarterly increases.
All in, if you are looking for industrial exposure W.P. Carey is a good high yield option. Add in the property type diversification and geographic diversification and the story is even better for more-conservative types. The stumbling block is the dividend reset, but even that isn't so bad when you understand why it occurred.
What does Rexford Industrial do?
The problem with W.P. Carey is that it is, basically, a slow and steady tortoise. Even before the dividend reset, dividend growth was modest over time. If you are looking for a more exciting dividend stock with an industrial focus you'll want to examine Rexford Industrial. That said, the dividend yield is a far less compelling 4.3%. However, that's near the highest level in the REIT's history, suggesting that it is on sale today.
The big selling point here, meanwhile, is dividend growth. Over the past decade Rexford's dividend has increased at a compound annual rate of 13%. That's a high figure for any company and easily beats what is likely to be low single digit dividend growth from W.P. Carey over time. But there's a caveat here because of the investment approach that Rexford uses.
For starters, Rexford is 100% focused on industrial assets. So you don't get property type diversification. Then Rexford is focused 100% on the Southern California market. So you don't get geographic diversification. To be fair, the Southern California industrial market is among the strongest in the United States, with a low vacancy rate and high barriers to entry (which continues to allow for above average rent rate increases). But if anything goes wrong with that one market Rexford will be in trouble. If you can't get comfortable with that risk you shouldn't buy this laser-focused REIT.
Which industrial focused REIT is the better dividend stock?
If you are trying to pick between Rexford and W.P. Carey you need to look past the dividend yield and truly understand the company behind the yield. For conservative income investors that appreciate the benefits of diversification, the higher yield of W.P. Carey will likely be a more attractive proposition. If diversification isn't a big concern for you and you prefer to own companies that have a history of strong dividend growth, then you'll want to own Rexford Industrial despite the lower starting yield. Both are good choices, but for different types of investors.
