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Motley Fool:Cash and Carey

W.P. Carey is a “net-lease” REIT. Essentially, it owns single-tenant properties, and its tenants are responsible for most of the operating costs of the assets they occupy.  (Courtesy photo)
W.P. Carey is a “net-lease” REIT. Essentially, it owns single-tenant properties, and its tenants are responsible for most of the operating costs of the assets they occupy. (Courtesy photo)

Diversified real estate investment trust W.P. Carey (NYSE: WPC) was recently down 20% from its 52-week high, in part because of its exposure to sectors hit hard by COVID-19, such as retail and restaurants. But about 47% of its portfolio consists of industrial properties and warehouse spaces, some of which have enjoyed tailwinds from the pandemic-driven growth in e-commerce. The company’s diversification has paid off. Also impressive, W.P. Carey collected 98% of the rent it billed in the third quarter.

W.P. Carey is a “net-lease” REIT. Essentially, it owns single-tenant properties, and its tenants are responsible for most of the operating costs of the assets they occupy. That’s generally considered a fairly low-risk approach to owning real estate. Furthermore, W.P. Carey tends to buy properties directly in sale-leaseback transactions, finding companies that are looking to raise cash (to shore up their balance sheets or invest in growth) by selling properties they still want to occupy.

Long-term investors in W.P. Carey can profit from its solid business model and its hefty dividend, which recently yielded nearly 6% and has been increased annually for more than two decades. It has a strong performance history, and recently sported a reasonable valuation, with shares recently trading for around 15.5 times its cash flow per share.

For those interested in real estate income, W.P. Carey is worth a closer look.

Ask the Fool

Q: Can you explain payout ratios? – M.W., Bradley, Illinois

A: A company’s payout ratio is the percentage of its earnings (net income) that’s paid out to shareholders as dividend income. For example, PepsiCo’s trailing earnings per share (EPS) over the past year were recently $5.05 and its annual dividend was $4.02 ($1.023 per quarter). Divide $4.02 by $5.05 and you’ll get 0.80, or a payout ratio of 80%.

A payout ratio above 100% reflects a company paying out more than it’s earning, which is not sustainable over the long run. (It can be OK in the short term, if the company is going through a temporary rough patch.) A high payout ratio say, 80%, 90% or more gives a company little flexibility regarding what it can do with its cash. That can be OK for big, established companies that don’t need to reinvest much in their businesses. A low payout ratio reflects lots of room for dividend increases.

Consider a very steep payout ratio a red flag, as the company may have to reduce its dividend. For lists of our recommended stocks, with and without dividends, check out one of our investor services, at Fool.com/services.

Q: How many stock mutual funds exist? – R.P., Beaverton, Oregon

A: According to the Investment Company Institute, as of November 2020, there were about 7,677 mutual funds in the U.S., with about 4,478 of them focused on stocks. It’s worth counting exchange-traded funds, or ETFs, too, as they’re also pooled money invested in portfolios of various securities. As of November, there were 2,165 ETFs, 1,634 focused on stocks.

To learn more about investing in mutual funds and ETFs, visit Morningstar.com or the “Investing Basics” nook at Fool.com.

My smartest investment

My smartest investments ever have been lunches with my mentors because their experience has been tried and tested. – G.R.L., online

The Fool responds: Few people think of mentoring as investing, but as you suggest, it’s an excellent kind of investing in someone’s future.

If you’re young or even midway through a career you’d do well to seek out people willing to serve as mentors for you. Some companies have formal mentoring programs in which you can participate. Alternatively, you might find one or more mentors by approaching superiors you admire and offering to treat them to a coffee or lunch, so that you can ask questions about their career path and how they’ve succeeded. (Some career counselors advise not asking directly for someone to be your mentor, but instead to let such a relationship simply develop, by asking questions and working hard enough to get noticed.) Ideally, a mentor will offer guidance and honest feedback and, if they’re in a position to do so, help you land better jobs.

If you’re already well-positioned in your career path, consider seeking out promising younger folks who could use some good advice and support. Mentees, for their part, should listen well and be willing to hear some hard truths on occasion. Ideally, they should proactively drive conversations, not just await pearls of wisdom to be delivered on a platter.

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