Best Stock to Buy Right Now: Realty Income vs. W.P. Carey

Key Points

• Realty Income is the largest net lease REIT, with W.P. Carey coming in at No. 2.

• Realty Income is focused on retail assets, with W.P. Carey focused on industrial assets.

• Realty Income and W.P. Carey both have attractive yields, but their dividend histories are massively different.

• 10 stocks we like better than Realty Income ›

If you are looking at Realty Income (NYSE: O) you should also be considering W.P. Carey (NYSE: WPC), and vice versa.

These two real estate investment trusts (REITs) are the top two players in the net lease niche. They have a number of similarities, but there are also some important differences.

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Here's what you need to know to make the final call.

Image source: Getty Images.

The business model

Both Realty Income and W.P. Carey own single-tenant properties for which the tenant is responsible for most property-level expenses. This is known as a net lease. Often, net lease properties are created when a company sells a vital property and then instantly signs a long-term lease. It is really a financing transaction, given that the seller retains effective control of the property after it becomes the lessee.

Net lease REITs like Realty Income and W.P. Carey benefit from growing their portfolios and getting a property with a reliable tenant and a long lease term. The leases also tend to have regular rent bumps built into the lease contracts.

From that perspective, Realty Income and W.P. Carey are interchangeable. But there are more similarities.

For example, both own properties in North America and also in Europe, which is more geographic diversification than most of their peers offer. And they both spread their properties across retail, warehouse, and industrial assets, with each having a fairly large collection of "other" property types in the mix.

If you are looking for a diversified REIT, both will fit that bill quite well.

The difference between the two is really more of a nuance. Realty Income is more focused on retail properties, which make up around 75% of its rent roll. W.P. Carey is more focused on industrial assets, which account for roughly two-thirds of its rents.

Dividend similarities and differences

The dividend is where the most notable differences show up, though there are still some similarities to consider first.

Realty Income's dividend yield is 5.6%. W.P. Carey's yield is a touch shy of 5.8%. Both figures are far above the S&P 500 index's (SNPINDEX: ^GSPC) 1.3% and the average REIT yield of around 4.1%.

And then there's the big difference. Realty Income has increased its dividend every year for 30 consecutive years. Within that streak it has increased its dividend for 110 consecutive quarters. W.P. Carey's dividend streak is currently just six quarters long, meaning the annual streak is at one year.

If you can't handle a dividend cutter, then Realty Income is the easy winner here.

But there's a nuance to consider with W.P. Carey, which reset its dividend lower after deciding to exit the troubled office sector in late 2023. That led to the cut, after 24 years of annual increases, but materially improved the long-term outlook of the business. And, once the cut was made, the dividend went right back to an increase every quarter, which was the norm prior to the cut.

If you are willing to give W.P. Carey the benefit of the doubt, it looks like the business is actually more attractive today than it was prior to the dividend reset. And, thanks to the cash raised from the office exit, which it has reinvested in new assets, it is likely to have better growth prospects than Realty Income over the next few years.

How much risk are you willing to take on?

If you are a dividend investor that likes to err on the side of caution, Realty Income is the better REIT to buy right now. If you can accept a little uncertainty, W.P. Carey and its slightly higher yield might be the best choice. However, the similarities and differences in the portfolios here suggest that, for a lot of investors, owning both of these large net lease REITs could be the best call of all.

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