Retirement: 2 ‘Must Own’ Foundational Picks

Co-authored with Tread Softley.

Have you ever found yourself sitting and watching a young man or woman struggle to achieve success? sometimes The success they dream of. The older I get, the more I realize that I don’t want to make big sacrifices or take big risks on potential futures, especially when I already have a solid foundation.

There is a saying that is popular among older people. We see something and say, “That’s a youth game.” The point here is that it’s probably something young people would be happy to do, and older people simply don’t want to because they don’t have to. Either they are not willing to take risks or they have acquired the wisdom to know through life that it is not worth it.

Likewise, when it comes to markets, I’m not the type to bet on penny stocks. I don’t want to trade naked puts or naked calls. I simply want to use the market as an employee to generate income from my portfolio and pay my living expenses. I like to keep things as simple and straightforward as possible. That’s why I’ve developed a unique income method to achieve simple, repeatable and consistent success from the market through cash dividends poured into your portfolio.

Today we would like to take a look at two great opportunities to earn a steady income with decades of proven success in increasing holder income. They have survived all kinds of market and economic conditions and continue to generate outstanding income.

Let’s jump in!

Choice #1: WPC – Yield 6.2%

WP Carry Co., Ltd. (WPC) has evolved into one of the largest triple net lease real estate investment trusts (REITs). These are internally managed and own a portfolio of operationally significant commercial properties. Years of steady acquisitions and reduced errors have left them with an impressive global portfolio designed to weather any storm. That includes global pandemics. WPC announced its results on Friday, April 28.

WPC has a solid history as a dividend-increasing stock, with 25 consecutive years of dividend increases. WPC has proven it can grow through a variety of economic conditions, including the Great Financial Crisis, which has been particularly difficult for REITs.

WPC hasn’t slowed down, reporting Adjusted Funds for Working (AFFO) of $1.31 per share and maintaining annual guidance of $5.30 to $5.40 per share. WPC plans to acquire properties worth between $1.75 billion and $2.25 billion by the end of the year. It has acquired over $740 million to date.

The market is bearish on REITs because of rising interest rates. Because REITs use leverage, Wall Street inevitably reacts to selling. This ignores the big benefits of inflation. WPC’s same-store rents hit 4.3% in Q1, more than double the 2021 level. sauce.

WPC benefits from CPI escalators in its portfolio and lease renegotiations at expiration. Note that inflation kicked in in 2021 and it wasn’t until 2022 that a positive impact on the WPC same-stores index appeared.

This is because the CPI escalator leases are not renewed every month. Often he is renewed once a year, sometimes every three or five years. As a result, this level of growth will continue for several years. Management expects same-store sales to grow 4% in 2023 and 3% in 2024, even if CPI falls to 2% by the end of the year.

On the other hand, on the debt side, the majority of WPC’s debt is fixed rate. Debt maturing this year is minimal, but over 40% of debt will mature within the next four years.

WPC recently completed a three-year €500 million term loan with a 4.34% swap. So, while interest rates are higher than his WPC’s current average, the strength of WPC’s balance sheet allows it to be borrowed at an attractive price compared to an investable +7% yield.

The tailwinds from inflation outweigh the headwinds from rising rates, especially as interest rates are likely to fall before the WPC has to refinance its significant level of debt over the next four years.

WPC is a reliable dividend growth stock that you can feel comfortable owning in any economy.

Option 2: Realty Income Corporation – Yield 5.1%

Realty Income Corporation (O) is a premium triple net lease real estate REIT that is also a Dividend Aristocrat. The ‘monthly dividend company’ reported first-quarter results on May 3, but slightly increased guidance. Property income continues to grow in a planned manner, and as O maintains a habit of giving small quarterly raises, we can expect the dividend to continue to grow as well.

O invested over $1.6 billion in the quarter with an average cap rate of 7%. This is higher than the cap rate of 5-6% that has become common in recent years. sauce.

With an average lease term of 11.2 years, these acquisitions are much more focused on future revenue growth than immediate growth. Even with his A-rated balance sheet, Company O’s borrowing costs have risen, at 4.7% and 4.9% for its most recent offerings. It is well above the average interest rate of unsecured corporate bonds (less than 3.5%).

It is worth noting that O’s $400 million 2028 bond has an option to be called at par as early as January 2024. This means that if interest rates fall, O can refinance at a lower interest rate without penalty.

So 1% AFFO/share growth in Company O doesn’t seem like a lot today, but with interest rates peaking and trending downward, Company O has the option to refinance its leverage at a lower rate. , that interest savings is directly passed on to earnings. .

While we wait, we can expect slow but planned growth in earnings per share and dividends from real estate income as usual.

Conclusion

With decades of proven success, WP Carey Inc. and Realty Income Corporation are the perfect REITs to start building a foundation for your dividend portfolio. Both have existed through high and low interest rates, booms and busts. Meanwhile, it continues to pour profits into the hands of shareholders at an increasing rate each year. This is the kind of stable, reliable investment that retirees dream about. You don’t have to worry about daily price movements because you know your next dividend check will be in the mail.

Building a portfolio is like building a beautiful home or structure. You are both an architect and a construction worker, designing and building structures. An important part of any building is the foundation. A weak foundation can cause a building to collapse in months or years, but it will not collapse for centuries afterward. The greatest structures ever built by mankind have wonderful foundations that can stand the test of time. All income portfolios should consist of at least 40 individual selections (42 rules), but there are some selections that do not need to be spot-checked all the time and are considered reliable foundational selections. You will need. Choices like the one I described today are the basic choices for your income portfolio. I consider it an essential part of my personal portfolio.

This way, you can know that your employees are working hard to earn their income every day, month, and quarter while you enjoy your retirement. The advantage of being a landlord or boss is that you don’t have to do the hard work. There are people who will work for you and make money for you. We have a “model portfolio” that gives +9% return.

That’s the advantage of our income method. That’s the beauty of income investing.