W. P. Carey (NYSE: WPC) stock price has underperformed its peer group in the past 12 months as concerns about its transformation remains. It has crashed by about 7% in this period while the Vanguard Real Estate ETF (VNQ) has jumped by over 11%. The same performance has happened in the past five years, as shown below.
VNQ vs WPC five-year performance
Why WPC is underperforming
There are two main reasons why the W. P. Carey stock price has underperformed the market in the past few years.
First, the company transformation has taken longer-than-expected to generate the desired results. One of its first transformations was its decision to exit the asset management industry that was always a drag on its earnings.
The company argued that exiting the business would help it improve its earnings, which would in turn give it a higher valuation multiple. However, exiting the business has not achieved significantly faster earnings growth.
Second, the firm recently decided to exit its office business, which has been going through challenges because of remote and hybrid work. It did that by spinning off its office segment into a separate company.
As it did that, W. P. Carey decided to reset its dividend payout ratio, which was effectively a cut. That ended its reputation among income investors who invested in it because of its long track record of dividend growth.
W. P. Carey argues that it is now a simpler company with a better dividend and no exposure in riskier assets. Instead, it has transformed itself into a quasi-industrial net lease company, with inflation-adjusted rent adjustment.
The other potential benefit for investing in WPC is that it has now room to grow its dividends as it did before. Besides, it is now a simpler company with higher occupancy rates and a lower dividend payout ratio. Its weighted average lease term is 12.2 years.
Further, in addition to its industrial business, it has a large market share in other areas like warehouses and retail. Some of its top customers are companies like Advance Auto Parts, Dick’s Sporting Goods, and True Value.
Therefore, a contrarian case about W.P Carey can be made as the management continues its transformation. However, as I have written severely, investing in high-dividend REITs is not always a good idea. Instead, a strategy that has worked for years has been to invest in popular ETFs like SPY and QQQ.
W. P. Carey stock price forecast
WPC stock has rebounded in the past few days as it jumped from this month’s low of $53.60 to $60. It has jumped above the crucial resistance level at $57.78, its highest swing on April 9th.
The stock has also jumped above the 50-day and 200-day moving averages and is nearing the 38.2% retracement level. Also, the Relative Strength Index and the MACD indicators have all continued rising.
Therefore, the outlook for the stock is bullish, with the next level to watch being at $66.37, its highest level in January 2024.
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