High Growth or High Yield? W.P. Carey vs. Rexford Industrial

There's no correct or incorrect way to invest in dividend stocks, but there are very different approaches that one needs to consider. A comparison between real estate investment trusts (REITs) Rexford Industrial (NYSE: REXR) and W.P. Carey (NYSE: WPC) offers a pretty clear reason why. If you prefer high-yield stocks to maximize your income stream, one will easily win out. But if you prefer dividend growth, the other one will be a better fit.

Here's what you need to know.

What does Rexford Industrial do?

Rexford Industrial, as its name implies, owns industrial real estate. However, it takes a fairly unique approach in that it is completely focused on just one market, Southern California. Most REITs try to include more diversification in their portfolios, either by owning multiple property types or by spreading assets across multiple geographic regions. In this way, Rexford is a pretty aggressive investment.

Image source: Getty Images.

That said, Southern California happens to be a very attractive place in which to own industrial assets. For starters, it is one of the largest industrial markets in the United States and the world. It faces supply constraints and heavy barriers to new construction. And it has among the lowest vacancy rates in the U.S. industrial sector. That's allowed Rexford to aggressively increase rates on expiring leases in recent years. Add that to its history of redeveloping assets and acquiring new properties, and Rexford has managed to grow both reliably and quickly.

What does W.P. Carey do?

At the other end of the spectrum for diversification would be W.P. Carey. Industrial properties make up around 64% of the REIT's rent roll, but it also owns retail properties (21% of rents) and has a fairly large "other" bucket (the rest). Moreover, W.P. Carey's portfolio is spread across North America and Europe, where it has operated for over two decades. So while W.P. Carey is industrial-focused, it is way more diversified than Rexford.

The fly in the ointment with W.P. Carey is that it recently exited the office sector, which, given the size of the portfolio it had to sell, necessitated a dividend reset. That happened at the start of 2024, but the dividend has now been increased each quarter since the reset. That's a clear signal that W.P. Carey is back on a growth path, noting that the company has a record level of liquidity for acquisitions following the office sales.

The biggest difference between Rexford and W.P. Carey

As a dividend investor looks at these two industrial-focused REITs, the first big question is going to be about diversification. If that's important to you, then W.P. Carey is the easy choice. However, the next issue is going to be the dividend. On the yield front, W.P. Carey is the hands-down winner. Its dividend yield is 5.5% compared to Rexford's 3.3%. That's not massive on an absolute basis, but relatively speaking W.P. Carey is offering investors an income stream that is a huge 66% larger. The answer here is pretty obvious if you are trying to maximize the income your portfolio generates.

However, if history is any guide, W.P. Carey's dividend growth will be fairly modest over time. Think low- to mid-single digits. That's likely going to be enough to keep up with, or slightly outpace, inflation. But you shouldn't go in expecting much more than that.

WPC data by YCharts

Rexford, on the other hand, has grown its dividend at a compound annual rate of roughly 13.5% over the past decade. The rate over the past one, three, and five years are all in the double digits. That's a massive growth rate for a REIT and will end up growing your buying power materially over time. It also means that your yield on purchase price will be quite compelling, even if you don't actually need the dividend income. And compounding the dividend with dividend reinvesting will create an even more attractive total return on your investment. The chart above highlights the very different outcomes for investors focused on dividend growth versus high yield.

Which REIT is right for your portfolio?

There really isn't a correct answer to the matchup between W.P. Carey and Rexford because it depends on what you are looking to achieve. If you need income now, W.P. Carey is the better choice. If you prefer a diversified investment, W.P. Carey will also win out. But if you are a little more aggressive and have a longer time horizon for when you'll need to start using dividends to help pay for living expenses, history clearly suggests that Rexford will be the more attractive option.

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Reuben Gregg Brewer has positions in W.P. Carey. The Motley Fool has positions in and recommends Rexford Industrial Realty. The Motley Fool has a disclosure policy.