Time for Another Performance Check

For some background on the idea behind the Performance Check, and the XIRR function used for the calculations, please see my first post in this series.

Once again, a couple of months have passed since my last Performance Check (July 2019).  The series now continues with a look at another dividend-paying stock from my Portfolio.  On the docket is W.P. Carey (WPC), one of the largest net lease REITs.

WPC is headquartered in New York, yet operates not only in the U.S., but Northern and Western Europe, too.  The company owns roughly 1200 properties including ones in the industrial, office, warehouse, self-storage and retail spaces.  They lease the properties long-term, with built-in rent escalators.  WPC attempts to stay well diversified by acquiring properties of different type, in various locations, then furthers that by leasing to tenants in various industries.  The company has been operating for over four and a half decades, but company stock only began trading in 1998, and only began trading as a REIT in 2012.

On the dividend front, WPC is a Dividend Contender, with over 18 years of consecutive dividend increases (so even before it became a REIT).  WPC is currently raising their dividend on a quarterly basis, but the raises are rather small.

The dividend growth for WPC has been waning – only a 2%-3% annual rate in recent years.  Dividend increases were large once REIT status was achieved, but have tailed off ever since then.  You can see this in the following dividend growth table.

 

With a REIT, I might expect a large yield in exchange for slower dividend growth and slow price appreciation.  Since I’ve been holding WPC, I’d say the yield has been good (currently 4.79%, but yielded more a year ago), the dividend growth is dwindling (currently 2% and dropping), but the price appreciation has exceeded expectations (especially over the past year).  The price appreciation for WPC has certainly been helped by the low interest rate environment, allowing WPC to borrow at low rates and invest in new properties.

The price appreciation absolutely helped with my performance, as you will see.  However, before we look at my WPC performance, note that unlike my legacy holdings WPC is a relatively new Portfolio position (only a few years), and thus I don’t have a large amount of data/time to factor into the return calculated in this Performance Check.  Therefore, for now, large price changes can have a significant impact on my annualized return.

 

My Personal Performance for WPC

My history with WPC in my Portfolio has been fairly uneventful from a transaction perspective.  I made my initial purchase in mid 2015, then pared that position down with a couple of sales along the way, bringing me to where I am today.

The first sale was a result of me re-allocating my Portfolio.  I sold half of the original 100 WPC shares I purchased for a small profit, and funded other stock purchases for my Portfolio.  The second sale was comparatively smaller (15 shares, also for another small profit).  At that time, I was looking to reduce the dividend weighting of some of my Portfolio REITs.  The REITs dividends were becoming large enough to make me uncomfortable with their size, so I trimmed my WPC position a bit.

Below is a capture of the spreadsheet I keep with my WPC cash flows, and the calculated XIRR.  Compared to my five legacy Portfolio holdings, the table for WPC is small, thanks to its shorter holding period and small number of transactions.

Here’s a note with regard to the possible ‘Type’ column entries: EOY Value = End Of Year Value, Dividend = a dividend that was not reinvested (a cash outflow)

The duplicate EOY Value entries at the end of each year (one negative, one positive) do not affect the cash flow, and can be thought of as boundary markers, allowing me to make the individual yearly return, and the annualized total return calculations.

 

 

The following price chart is also helpful to see.  It shows the stock price change since my initial purchase on 5/19/2015.  One can really see the outstanding price appreciation since Q4 2018.  My Year-To-Date return for WPC stands at 37.60%

 

The stock hovered in the $55-$70 range for over 3 years before breaking out to start 2019.  I didn’t add to my WPC position over the years, as I instead worked to find a value weighting and dividend weighting in my Portfolio that I liked for the stock.

The yield for WPC is currently 4.79% – above my Portfolio average of 2.63%, but that’s to be expected given that it’s a REIT.

WPC currently has a below-average value weighting in my Portfolio at 1.22% – my 37th largest position (out of 47 stocks).  However, its dividend weighting is 2.21% thanks to it relatively higher yield when compared to my other Portfolio stocks.

All WPC dividend payments I’ve received since my position was started have been reinvested.

My current investment in WPC is $2,234.09.  My cost basis, which includes $1,337.54 in reinvested dividends, is $3,571.63.

Meanwhile, the current value is $4,812.14, which reflects a potential capital gain of nearly $1,240.51 should I liquidate my entire position.  The annualized total return ends up being 11.33%, covering my initial purchase on 5/19/2015, through 9/14/2019.

 

Summary

With 4+ years of owning WPC, I’m more than happy to have recorded an 11.33% annualized return.  That annualized return has climbed more than 4% in 2019 alone thanks to recent stock price appreciation.  However, I expect some of the gains to be returned once we enter a rising interest rate environment again.

Over the years, my WPC returns have been roughly 50% dividends, and 50% capital appreciation.

I like my current WPC position and don’t have any current plans for expanding it.  One thing I don’t like about WPC is the slow dividend growth.  It’s possible I’ll look for a replacement REIT if better dividend growth doesn’t return.

 

Bringing the returns for my other Performance Check stocks (PG, RPM, AFL, PEP, JNJ, AL, GILD, TROW & FAST) up-to-date allows for the comparison below.

Note that rightmost column shows the year of my initial purchase for each stock, just to provide some detail with regard to how many years are part of the annualized return.

 

WPC debuts at #5 in terms of annualized return for my Portfolio stocks that I’ve reviewed – so right in the middle of the pack.  Still, annualized returns of 10%+ are more than welcome in my Portfolio, so I’ll take it.  Of course, that ranking was certainly helped by this year’s outstanding stock price performance.

All stocks here improved their annualized return since my last Performance Check in July, except for Aflac (AFL) and Johnson & Johnson (JNJ).

Gilead Sciences (GILD) remains my poorest performer of the stocks reviewed (by a wide margin), despite creeping higher in annualized return since the last review.  I hope to see from progress from GILD over the coming quarters, or GILD may find itself replaced in my Portfolio.

Meanwhile, T. Rowe Price Group (TROW) and Fastenal (FAST) have been extending their return leads as of late.  I hope these two stocks can continue to perform.

Looking forward, Realty Income (O) is slated to be my next Performance Check stock – another REIT!

 

Are you monitoring the performance of your Portfolio holdings?  If so, what methods do you use to check on their performance?