Two Dividend-Generating Shares that Warrant a Long-Term Investment Span of Ten Years
Two Dividend-Generating Shares that Warrant a Long-Term Investment Span of Ten Years
The S&P 500 index is barely providing investors with a yield of approximately 1.2%. This is akin to trekking through a desert without any water for a dividend investor seeking high returns.
But fret not, for there are high-yielding investments within your reach. You merely need to embrace a bit more unpredictability, which is why W.P. Carey (0.17%) boasts a substantial 6.5% yield and Toronto-Dominion Bank (0.15%) offers a dividend yield of 5.2%. Here's why both are worth holding onto for a decade or more, despite the added risk.
A shift, not a reduction, at W.P. Carey
When 2024 commenced, W.P. Carey shareholders encountered a decrease in their dividend. Many dividend investors might dismiss companies that have reduced their dividends, assuming they are grappling with issues or facing significant hardships.
Why else would they reduce their dividends? In W.P. Carey's case, it was due to a strategic business overhaul.
At the end of 2023, W.P. Carey concluded that the office sector was confronting problems so severe it no longer made sense to gradually depart from the sector, which constituted 16% of its rent portfolio at the time. Instead, the net lease real estate investment trust (REIT) decided to exit the office sector in a single, swift move. Exiting the sector was too significant a portion of its rental income to lose without a dividend reduction.
Later, in the quarter following the reduction, the company actually raised the dividend. It has maintained this increase every quarter since, keeping the same quarterly increase cadence as before the reduction. This is why I categorize this as a dividend reassessment, not a reduction.
The decision was made from a position of strength, not weakness, and the subsequent dividend increases were intended to convey a message of stability to Wall Street. Moreover, leaving the office market granted W.P. Carey with capital to invest in new assets, which it has and will continue to do through 2025 and possibly into 2026. This will generate growth.
Investors are justified in being frustrated with W.P. Carey's dividend reduction. But it's important to understand that it was a strategic maneuver, and management appears to be aiming to rebuild the 24-year-long streak of dividend increases that it disrupted by selling its office properties. With an alluring 6.5% yield, compared to 3.7% for the typical REIT, even conservative high-yield investors should likely consider W.P. Carey today.
Toronto-Dominion Bank suffered a setback
Toronto-Dominion Bank, also known as TD Bank, allowed its U.S. operations to be used for money laundering. This is a significant issue and suggests that the bank's internal controls were insufficient.
Regulators in the United States were displeased and imposed a massive fine on the company. They are also requiring TD Bank to strengthen its money laundering controls and have imposed a cap on its assets in the U.S. market.
None of this is positive, but the asset cap is particularly concerning. Essentially, it means that TD Bank's U.S. operations will not be allowed to expand until the bank has regained the trust of its U.S. regulators.
TD Bank's substantial Canadian operations are unaffected by any of this, so the financial giant continues to stand on solid ground. In fact, it increased its dividend when it announced its fiscal fourth-quarter earnings earlier this month. This was a message to dividend investors that they could still rely on TD Bank to be a dependable dividend stock despite the challenges it faces.
However, 2025 is likely to be a challenging year for the company and its stakeholders. Thanks to the asset cap in the U.S. market, management will be implementing changes to its business that will dampen earnings but free up capital to continue serving its customers without interruption.
This will impact earnings. However, it's unlikely that the dividend was increased with the intention of it being reduced a few months later.
It's worth noting that TD Bank survived the Great Recession without a dividend reduction, unlike many American banks, so it seems plausible that it will weather the current U.S. challenges, too. If you can wait for the company to eventually regain regulator trust, you'll be rewarded with a substantial 5.2% dividend yield, backed by a steadily growing dividend during the process. This is impressive, considering that the typical bank is only yielding a meager 2.1%.
In the context of investing money and seeking high returns, consider investing in W.P. Carey, which despite reducing its dividend due to a strategic business overhaul, has maintained an increasing dividend ever since and offers a substantial 6.5% yield. Toronto-Dominion Bank, despite facing money laundering issues and a fine, has shown resilience by increasing its dividend and continues to be a dependable dividend stock with a yield of 5.2%.