Better Dividend Stock: Rexford Industrial vs. W.P. Carey

Rexford Industrial (NYSE: REXR) and W.P. Carey (NYSE: WPC) are slotted into different niches in the real estate investment trust (REIT) sector. Both have a focus on industrial assets, so investors looking at one might also want to consider the other. But when it comes to the way they run their respective businesses, these two REITs are polar opposites.

Here's why some investors will love Rexford and hate W.P. Carey, and why other investors will hold the opposing view.

Rexford is an industrial REIT, which means that it owns things like warehouses that it leases out to tenants. What sets the company apart from the pack, however, is that it is entirely focused in the Southern California region. This is a sharp business model. That said, the Southern California market is one of the largest and most important industrial markets in the world, because it's a gateway from Asia into the United States.

There's a supply/demand imbalance in this region that has long put property owners in a strong position. To be fair, coming out of the coronavirus pandemic, Rexford's position was much stronger, highlighted by rent increases on expiring leases that were in excess of 80%. Today it has "only" been able to raise rents in the 30% space, which is still pretty phenomenal.

As a net lease REIT, W.P. Carey owns single-tenant properties for which its tenants are responsible for most property-level operating costs. It is among the largest companies in this niche, but it generates nearly two-thirds of its rents from industrial assets. This is why it may interest the same investors who would be looking at Rexford.

However, there's a big difference. W.P. Carey's portfolio is spread across North America and Europe, so diversification is a big theme for the REIT. What's more, roughly 22% of its rents come from retail properties, and the rest falls into a very broad "other" category. This diversification, coupled with the portfolio's geographic reach, helps reduce the concentration risk investors would face with a REIT like Rexford.

That said, diversification hasn't always resulted in wins for W.P. Carey. It recently chose to exit the office sector in one quick move. That choice improved the portfolio, given the weak office dynamics today, but it resulted in a dividend reset, which might turn off some dividend investors.

Before you walk away from W.P. Carey, however, it's important to note that in the quarter after the dividend reset, the dividend started to increase again. It has increased every quarter since the cut, which was the cadence prior to the reset. In other words, the office exit and dividend reset was a tough call, but one made from a position of strength.