Better Dividend Stock: Rexford Industrial vs. W.P. Carey

Rexford Industrial (NYSE: REXR) and W.P. Carey (NYSE: WPC) are slotted into different niches in the real estate investment trust (REIT) sector. Both have a focus on industrial assets, so investors looking at one might also want to consider the other. But when it comes to the way they run their respective businesses, these two REITs are polar opposites.

Here's why some investors will love Rexford and hate W.P. Carey, and why other investors will hold the opposing view.

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What does Rexford Industrial do?

Rexford is an industrial REIT, which means that it owns things like warehouses that it leases out to tenants. What sets the company apart from the pack, however, is that it is entirely focused in the Southern California region. This is a sharp business model. That said, the Southern California market is one of the largest and most important industrial markets in the world, because it's a gateway from Asia into the United States.

There's a supply/demand imbalance in this region that has long put property owners in a strong position. To be fair, coming out of the coronavirus pandemic, Rexford's position was much stronger, highlighted by rent increases on expiring leases that were in excess of 80%. Today it has "only" been able to raise rents in the 30% space, which is still pretty phenomenal.

What does W.P. Carey do?

As a net lease REIT, W.P. Carey owns single-tenant properties for which its tenants are responsible for most property-level operating costs. It is among the largest companies in this niche, but it generates nearly two-thirds of its rents from industrial assets. This is why it may interest the same investors who would be looking at Rexford.

However, there's a big difference. W.P. Carey's portfolio is spread across North America and Europe, so diversification is a big theme for the REIT. What's more, roughly 22% of its rents come from retail properties, and the rest falls into a very broad "other" category. This diversification, coupled with the portfolio's geographic reach, helps reduce the concentration risk investors would face with a REIT like Rexford.

That said, diversification hasn't always resulted in wins for W.P. Carey. It recently chose to exit the office sector in one quick move. That choice improved the portfolio, given the weak office dynamics today, but it resulted in a dividend reset, which might turn off some dividend investors.

Before you walk away from W.P. Carey, however, it's important to note that in the quarter after the dividend reset, the dividend started to increase again. It has increased every quarter since the cut, which was the cadence prior to the reset. In other words, the office exit and dividend reset was a tough call, but one made from a position of strength.

Which high-yield stock is better for you?

The slowdown in Rexford's rental growth rate has left investors sour on the shares, pushing them down by around 50% since their 2022 peak. That has pushed the dividend yield up to a historically high 4.1% or so. This suggests that Rexford, which has grown its dividend at a compound annual rate of roughly 13% a year for a decade, is on sale right now. If you are a dividend growth investor willing to take on a highly focused and currently unloved stock, it would probably be a good choice for you.

REXR data by YCharts.

But Rexford's laser-like focus will probably worry more conservative dividend investors. Those investors will probably prefer W.P. Carey, which has a lofty 6.2% yield. Yes, there is that dividend cut to consider. But prior to the cut, the dividend had been increased annually for over two decades. And after the cut, the REIT immediately started to increase the dividend again, clearly trying to show investors that it remained a reliable dividend stock.

If they can see past the cut and view it as a reset, more conservative high-yield lovers will probably prefer W.P. Carey and its diversified portfolio over Rexford.

All companies come with warts

Neither Rexford nor W.P. Carey are well loved on Wall Street today. There are good reasons for this, but it seems likely that investors are overly focused on short-term concerns in both cases. If you think long-term, both of these industrial-focused REITs should be of interest to you. But given their very different portfolio approaches, you'll probably favor one over the other.

More aggressive investors should focus on Rexford, while more conservative ones will want to take the time to understand W.P. Carey's long-term prospects.

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