Investors' first reaction to a dividend cut is often to hit the sell button. After that point, many on Wall Street won't even consider the dividend cutter again for years. That's the position that W.P. Carey (NYSE: WPC) finds itself in today as it looks to regain investor trust after a dividend cut. But there are some very good reasons to consider buying the net lease real estate investment trust (REIT) despite the lack of love it gets today. Here are just three of them.

The average real estate investment trust is yielding 3.9% today, using Vanguard Real Estate Index ETF as an industry proxy. The largest net lease REIT, Realty Income, has a yield of around 5%. W.P. Carey's dividend yield is 5.7%. From a relative perspective, W.P. Carey's yield is pretty attractive. It's also attractive on an absolute basis, too, noting that the S&P 500 index's yield is a scant 1.2%.

There's the small matter of a dividend cut here, though, so it's important to consider the safety of the dividend, too. On that front, the adjusted funds from operations (FFO) payout ratio is a reasonable 75%. Meanwhile, W.P. Carey's balance sheet is investment-grade rated. All in, the yield is high, but it looks very well supported by the underlying business.

That's good, but what about that pesky dividend cut? The answer here is a bit nuanced. For years W.P. Carey had been reducing its exposure to the office sector. In 2023, as the lingering impact of the coronavirus pandemic took its toll on office values, management felt it best to jettison its office assets as quickly as possible. Basically, the REIT chose to rip the bandage off quickly instead of writing off the value of its office properties year in and year out.

The problem is that office rents accounted for 16% of its rent roll at the time the decision was made. That's too large a slice of the rental pie to make this move and not adjust the dividend lower to account for the lost rental revenue. And, thus, the dividend had to be cut.

However, it is important to note that the cut was largely driven by the office disposal plan. The rest of the business remains relatively well positioned. That's why the dividend started growing again the quarter after the cut was enacted. It was increased the second quarter out, as well. Small quarterly increases were the cadence before the cut, and they remained the cadence after the cut. Reading into this, it seems like management is attempting to tell investors that nothing has changed about the REIT other than the office disposition. The dividend cut was a reset, not a move made from a position of weakness.

Getting rid of the office properties took the form of a spinoff and some asset sales. Added to other asset sales within the portfolio, W.P. Carey is now sitting on a fairly large amount of capital that it can put to work buying new assets. Management estimates that it has $3.2 billion in liquidity, an all-time high for the REIT. That's composed of roughly $1.2 billion in cash and $2 billion of capacity under its credit facility.

The problem is that the lost rent is gone immediately, while the cash generated from the office exit must be put to work slowly over time. Buying properties isn't something that can be done in an instant. However, it seems likely that W.P. Carey will have at least a couple of years of aggressive spending ahead that will boost its growth profile. And given the diversification in its portfolio, including exposure to both the North American and European markets, and properties spread across industrial, warehouse, and retail, it has a lot of avenues where it can put the cash to work, when it finds attractive deals.

Essentially, W.P. Carey's future is likely to be brighter as it invests its cash hoard. This process will most likely win back investor confidence in the REIT's shares.

There's no question that W.P. Carey upset a lot of dividend investors when it cut its dividend. That the dividend streak was on the cusp of reaching 25 years didn't go unnoticed. However, from a big-picture perspective, management made a tough choice that was likely the best decision for the REIT. And, in time, it will probably turn out to be the right choice for investors, too. With the company's attractive dividend yield, a refreshed portfolio, and cash to rebuild the business, now is the time for a deep dive into W.P. Carey if you can look beyond the affront of the dividend cut.

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Reuben Gregg Brewer has positions in Realty Income and W.P. Carey. The Motley Fool has positions in and recommends Realty Income and Vanguard Real Estate ETF. The Motley Fool has a disclosure policy.

Is High-Yield W.P. Carey Stock a Buy? was originally published by The Motley Fool