Summary
- Recent price action has favored Realty Income over W.P. Carey.
- Valuation suggests it is time to put fresh money into W.P. Carey.
- Their track records and risk exposures are similar. Buy the cheaper REIT at this time.
In late July, I wrote a bullish article on Realty Income (O). It received a lot of reader attention, and the stock is up 1.3% since then, the yield at 4.6%
The following week, I wrote a bullish article on W.P. Carey (WPC). It received about 12% of the reads that the Realty Income article received. The stock is down 9.2% since then, and the yield has expanded, from nearly 6% to 6.4%.
Both stocks swooned two days ago on the back of fears over renewed lockdowns and economic damage against a "second wave" of coronavirus infection.
All of this amounts to an 11.5% relative gain in favour of O since I wrote about these REITs a few weeks ago. The question for income investors is at what point do you start to favour WPC in your fresh money REIT allocations? The thesis of this article is that the answer to this question is "now".
(Source: Bloomberg)
A material gap in performance has opened up. As you can see in the chart, over the past five years, O has sometimes sprinted ahead of WPC, but WPC has tended to pull the lead back in over time.
Of course, if we measure the spread between the yield on each REIT and, say, the yield available on a risk-free instrument such as a 10-year T-Bill, the yield advantage for WPC seems even greater. Against the 10-year, WPC's yield is now 2% richer than that of O. Over time, this is a significant advantage.
(Source: Google, MarketWatch)
