1 Magnificent High-Yield REIT Stock Down 39% to Buy and Hold Forever

It's hard to find dependable dividend stocks with large yields. Often, a high dividend yield is a red flag, a warning from the market of potential risks within the company. However, certain types of companies are better suited to affording generous dividends.

Real estate is a great place to look. Companies that acquire and lease property, called real estate investment trusts (REITs), must distribute at least 90% of their income to shareholders to avoid paying corporate income tax. W.P. Carey (NYSE: WPC) was a highly regarded REIT but encountered some challenges after the pandemic and cut its dividend.

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Today, the stock is down nearly 40% from its high. Given the dividend cut and the stock's decline, it's easy to say, "I'll pass."

Yet, that could be a big mistake. I'll explain what makes W.P. Carey a top-notch REIT worth buying today and holding potentially forever.

Most investors hold REITs for the dividend income, so cutting the dividend will (naturally) not go over well. Here's what happened. W.P. Carey had significant exposure to office properties, which became troublesome after COVID-19 due partly to lockdowns and work-from-home policies. Approximately 16% of W.P. Carey's rental income came from offices.

W.P. Carey decided to spin off its office properties (it wasn't the only REIT to do so), which prompted a dividend cut last year:

Note that management has resumed dividend increases. However, it will take time for W.P. Carey to grow enough to pay as large a dividend as it once did. Analysts expect W.P. Carey to grow its funds from operations (FFO) at a low to mid-single-digit rate over the next few years.

The story of W.P. Carey's dividend cut is somewhat ironic because it's one of the most diversified REITs.

The company owns approximately 1,430 properties and leases to 346 tenants. W.P. Carey focuses on single-tenant commercial properties and uses net leases, meaning the tenant is responsible for the property's overhead expenses, such as taxes, maintenance, and insurance. That de-risks W.P. Carey from unexpected costs. It also has a self-storage portfolio of 78 additional properties.

Its properties are divided roughly 2-to-1 between North America and Europe. Additionally, no tenant represents more than 2.7% of its rental income, and its top 10 combine for just 20%. Its properties include industrial buildings, warehouses, retail buildings, and others. The tenants come from dozens of end markets, ranging from retailers to cargo transporters.