Market sell-off: 2 stocks I will keep forever
Bear markets can be scary, but that’s just your emotions talking. Indeed, few investors like to see red ink, and the fear of “losing it all” is very real. However, if you can step back and see the big picture, market declines are often good times to buy companies at relatively attractive valuations. This is the case today with Federal Real Estate (FRT 1.67%) and in a lesser extent, WP Carey (WPC 1.54%). Here’s what you need to know.
1. Small but mighty
Federal Realty owns a portfolio of approximately 100 outdoor shopping centers and mixed-use assets. When you look at the size of its portfolio, you’ll see that it’s one of the smaller names in the strip mall niche. And yet, this company has managed to string together the longest string of annual dividend increases in the real estate investment trust (REIT) industry. It’s a dividend king with a whopping 55-year history of annual dividend increases. The current yield is a generous 4%.
The big story here is that Federal Realty is focused on quality over quantity, buying well-located properties in affluent regions with material populations. And then it invests heavily in assets to improve the rents it collects and the occupancy rates. When he feels he has achieved all he can in a property and gets a good offer price, he sells the asset and looks for a new one. It’s a process that has been successfully repeated time and time again. With its giant mixed-use projects, the company spreads development over multiple stages, so there are years of growth built into the investments.
Shares of Federal Realty have lost more than 20% so far this year. If you’re a fan of dividend consistency, this is an opportunity you might not want to miss.
2. Opportunities abound no matter what the market brings
The next name here is WP Carey, which has seen its stock hold up relatively well so far in 2022. It’s down about 5%, which is much better than Federal Realty and the S&P500 Index. Still, the yield is a pleasant 5%, and the REIT is poised to become a dividend aristocrat, having increased its dividend every year since its IPO in 1998.
The big story here is that WP Carey is an opportunist. It’s a theme that runs through his entire portfolio and investment approach. For example, management prefers to enter into sale-leaseback agreements in order to get an insider’s view of a potential tenant’s finances. This allows him to work with companies that others might deem too financially risky to care. In addition to this, the company’s portfolio is diversified between industrial, warehouse, office, retail and self-storage assets, as well as a sizable “other” category. It also includes assets in North America and Europe.
This gives WP Carey the bandwidth to make the money work where he sees the most opportunity at any given time. For example, at the start of the coronavirus pandemic, management began to take an interest in industrial assets.
While WP Carey’s stock may not have seen the biggest pullback in 2022, his business model is still worth it for dividend-lovers — and at just about any point in the market cycle, as his opportunistic approach usually means he can always find a way to grow. But don’t think you’re paying too much here. He’s still trading hands around 8% lower than he was pre-pandemic in 2020, even though he’s managed to ride through the health scare without skipping a beat.
Take a leap of faith
The market is off its recent lows, but with fears of a recession still looming (gross domestic product has already fallen for two straight quarters, the unofficial definition of a recession), there’s a good chance the bear market is not over yet. Face the fear you’re probably feeling and understand that there’s never a perfect time to buy stocks. Sometimes it’s better to buy big companies at fair prices and keep them forever. Federal Realty and WP Carey both fall into this category, although given Federal Realty’s price pullback, it might be the slightly more attractive name right now.
Reuben Gregg Brewer holds positions at Federal Realty Investment Trust and WP Carey. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.