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W. P. Carey (NYSE: WPC) offers investors a big-time dividend. The diversified real estate investment trust (REIT) currently yields over 6%. At that rate, it can turn a $1,000 investment into more than $60 of annual dividend income. That's a lot more than you could earn by investing that same amount in an S&P 500 index fund, given its lower yield (1.3%).

The REIT's passive income stream should rise steadily in the coming years. A big driver is its focus on investing in high-quality commercial real estate that should supply it with a growing stream of rental income.

Built to generate steadily rising rental income

W. P. Carey owns a well-diversified portfolio of nearly 1,300 high-quality, operational critical properties (primarily warehouse, industrial, retail, and other real estate) secured by long-term net leases with credit-worthy tenants. It also operates 89 self-storage properties. The company's net lease portfolio supplies it with stable and growing rental income supported by built-in rent escalation clauses.

More than half of its portfolio links rents to inflation, while most of the rest of its properties feature fixed contractual rate increases. The company's portfolio has been growing its same-store annual base rent at a 3% to 4% annual clip over the last few years, thanks to elevated inflation. That provides the REIT with a nice base growth rate.

Its stable and steadily rising rental income helps support its high-yielding dividend. W. P. Carey aims to pay out 70% to 75% of its adjusted funds from operations (FFO) in dividends each year. That's a very comfortable level for a REIT. It gives the company a nice cushion while allowing it to retain cash to fund new investments.

Building back better

W. P. Carey's other growth driver is acquisitions. It's aiming to invest $1.5 billion to $2 billion this year. It has already secured about $700 million of new investments in 2024. In addition, its investment pipeline features over $300 million of deals in advanced stages. That puts it well on its way toward achieving its investment target.

The company recently closed or committed to invest $258 million across several deals. It's buying a portfolio of 19 industrial properties in a two-part transaction for $190 million. It also recently bought three newly built distribution centers for $40 million and two fitness centers leased to an existing tenant for $28 million.

It has ample financial flexibility to continue making new investments. In addition to the cash it retains after paying dividends and its strong balance sheet, W. P. Carey has an active capital recycling strategy. It plans to sell $1.2 billion to $1.4 billion of properties this year, including completing its phased exit from the office sector and selling a portfolio of self-storage facilities back to the operator.

The company's office exit has been a near-term headwind. However, these asset sales give W. P. Carey the cash to invest in properties with better long-term growth prospects. It primarily targets properties in the warehouse and industrial sector secured by long-term net leases featuring escalation clauses tied to inflation or that have a high fixed rental growth rate.

W. P. Carey's strategy of selling properties with lower rental growth potential or facing long-term demand headwinds will enable it to rebuild its portfolio with properties with more long-term rental growth upside. That should grow its cash flow faster in the future, driving a higher dividend growth rate.

A solid and growing income stream

W. P. Carey owns a high-quality portfolio of income-producing real estate. The rising rental income from its existing properties and those it acquires should enable the REIT to grow its already high-yielding dividend at a solid rate in the future. Those features make it a great option for investors seeking a sizable and steadily rising passive income stream.

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Matt DiLallo has positions in W. P. Carey. The Motley Fool recommends W. P. Carey. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.