Real estate investment trust (REIT) W.P. Carey (WPC 1.94%) welcomed 2024 with a dividend cut. Definitely not the most auspicious start. It started 2025 by announcing that it had achieved record transaction volumes in the final quarter of 2024, effectively ending that year on a solid note and starting the new year in a much more positive way. But is this turnaround story worth buying today, or should investors wait for more improvement before stepping aboard?

Sell (or avoid) W.P. Carey

The big problem with W.P. Carey today for most investors is the dividend cut at the start of 2024. Although it was driven by the decision to sell its office property holdings (16% of rents at the time), a move that left the REIT with little choice but to reset the dividend lower, it was something of a surprise to investors. Understandably, many dividend investors see a dividend cut and put a company into the "un-investable" category. If that's your position, you won't want to own W.P. Carey.

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There are also other reasons to be worried here. For example, the shares have been weak since the dividend cut, pushing the dividend yield up to 6.3%. That's well above the 1.2% the S&P 500 index is offering and more than two percentage points higher than the 3.8% yield of the average REIT. That might be viewed as a positive (more on this below), but it also means that W.P. Carey's cost of capital is elevated.

As a REIT, W.P. Carey must pass at least 90% of taxable earnings on to shareholders as dividends. That doesn't leave much cash behind for growth investments. As such, like all REITs, it frequently raises capital via stock and bond sales. A high yield increases the cost of selling equity. The fact that interest rates are higher today than they have been during the past few years is another headwind, though not one specific to W.P. Carey. The end result is that W.P. Carey is at a bit of a disadvantage when it comes to raising capital right now, which reduces returns on its investments and could even push management to buy less desirable, but higher-return, properties. It would be understandable if conservative investors wanted to stay on the sidelines here.

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Hold W.P. Carey

That said, W.P. Carey has been around for a very long time. In fact, that dividend cut came after 24 consecutive dividend increases. And the quarterly dividend increase cadence that existed before the reduction has picked right back up again (which is why it looks more like a reset than a cut in my view). This is a REIT that knows how to survive through good markets and bad ones. In fact, the office exit was basically a move that will strengthen the company over the long term given the difficult dynamics in the office sector today. W.P. Carey's quick return to dividend growth, meanwhile, makes the reset seem more like a decision made from a position of strength than one forced upon a troubled company.

Also, W.P. Carey was able to raise cash via its office exit, and some other assets sales, that it expects to put to work buying new properties. Although that eventually will help the REIT get back on the growth track, buying properties is often a slow and painstaking process. That brings up the record level of property acquisitions in the final quarter of 2024. The rents from those purchases won't start benefiting its financial results until this year, meaning 2025 will likely see a return to growth. The REIT isn't done buying, either, so more growth seems likely to be on tap into at least 2026 based on its efforts to reinvest capital from the office property sales.

Overall, there are some very positive signs taking shape at W.P. Carey. If you have stuck it out to this point, selling now seems like a mistake.

Buy W.P. Carey

If you don't own W.P. Carey, and you can forgive the dividend reduction, it seems like a fairly low-risk turnaround stock. While the company is clearly working through an important transition, it has a long and successful history behind it. It seems highly unlikely that this event, which already seems like it is in the rearview mirror, is going to drive the REIT out of business. If anything, it looks like W.P. Carey is positioning itself to come back stronger than ever.

And if you can handle just a small amount of uncertainty, you can collect a well-above average yield while you wait for the turnaround to unfold. Notably, as the turnaround takes shape W.P. Carey's growth rate is likely to tick higher, which seems likely to improve the view of the company on Wall Street (a higher stock price, in turn, would lower the REIT's dividend yield and thus its cost of capital). So buying now, as the turnaround starts to materialize, could get you in on the ground floor of a virtuous up cycle.

Know what you are buying with W.P. Carey

The transformation of W.P. Carey has actually been going on for roughly a decade or so. Not too long ago it was structured as a master limited partnership (MLP) and not a REIT. And not too long ago it owned an asset management business that sponsored non-publicly traded REITs. The choice to get out of the office market is another move to simplify and strengthen the REIT over the long term. Although this was probably the most difficult change for investors given the dividend reset, if you take a long-term view, investing now could be a good time to buy. But, if you are a more conservative type, nobody would blame you if you wanted to see more progress in 2025 to confirm that the REIT is actually on the right track.