It’s been a challenging year in for dividend stocks. A number of notable companies have cut their dividends. And more pain is possible as high interest rates and a faltering economy cause issues for many firms.
One particular area of interest is in the commercial real estate area. Investors have indiscriminately dumped just about everything related to real estate given the problems on the horizon. And that’s an understandable instinct. However, there will be clear winners and losers among real estate dividend stocks. Here’s one to sell and two better alternatives.
Avoid W.P. Carey (WPC)
Triple net lease REIT company W.P. Carey (NYSE:WPC) shocked investors this past week with news that it will be reducing its dividend. WPC stock tumbled another 10% on the announcement and is now down from $80 this past winter to less than $55 per share now.
As investors generally buy REITs for their dividend yields, it is rarely wise to buy a REIT when it is forced to reduce its payout.
Investors can take note of what went wrong for the firm. W.P. Carey owns self-storage, offices, and retail properties within its portfolio. Given the vagaries of the office market, W.P. Carey will now be spinning off those offices into a separate REIT to reduce the rest of the firm’s exposure to the remote work trend.
Unfortunately, this is unlikely to turn out well for shareholders. In fact, the office spin-off may well lose most of its value. To show this, look at fellow triple net REIT Realty Income (NYSE:O), which moved its offices into the Orion Office REIT (NYSE:ONL) back in 2021. ONL stock subsequently has lost around 75% of its value.
To put it bluntly, office real estate is a toxic asset right now. There will be more dividend cuts and guidance reductions across the space as analysts grapple with this new reality. With interest rates soaring and the economy weakening, this is no time to be gambling on an office turnaround.
Buy National Storage Affiliates (NSA)
National Storage Affiliates (NYSE:NSA) is a leading storage REIT. Like many REITs, NSA stock has been getting hammered lately; shares are down 21% throughout the past year.
What’s interesting is that this is only a slightly smaller loss than W.P. Carey’s 27% loss over the same period. However, while W.P. Carey is slumping under its unfortunate office and retail exposure, National Storage owns self-storage units that face no disruption risk. Remote work doesn’t impact self-storage units.
E-commerce allows folks to buy more stuff that ultimately ends up in storage units, whereas the rise of that e-commerce will cause shops and malls to close.
All this to say that this is the right time to be buying REITs and dividend stocks that are getting thrown out with the bathwater. Nothing has gone wrong with the self-storage space. In fact, self-storage pricing is up nicely amid high demand.
It’s true that there is a big commercial real estate crunch in sectors like office and retail. However, it won’t hit everything. Safe sectors, like self-storage, are now offering huge bargains. NSA stock yields 6.9% here, making it a great high-yield dividend stock to buy.
Buy Camden Property Trust (CPT)
Camden Property Trust (NYSE:CPT) is an apartment REIT. The apartment REITs have sold off due to higher interest rates, which will cause REITs to have to pay more interest on their debtloads.
However, investors are writing off the sector too quickly. After all, the surge in interest rates makes it more expensive for people to buy their own house. This should drive up demand for rental units in the meantime. Famed investor Paul Tudor Jones owns CPT stock, and the thesis makes sense.
Camden controls more than 58,000 apartment units across the country. It has focused heavily on southern and sunbelt destinations such as North Carolina, Florida and Texas that have benefitted from strong population and economic growth in recent years.
Despite the underlying business seeing normal operations, CPT stock has fallen nearly 20% throughout the past year. That has made shares a bargain, and it offers a dividend yield of 4.1% today.
On the date of publication, Ian Bezek held a long position in NSA stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
