Below, Investment U’s Income Expert, Marc Lichtenfeld, takes a look at The GEO Group’s dividend safety.
Private prisons are a hotly debated topic. Many people believe that prisons should not be a for-profit industry. But at the moment, privately run prisons are legal… and big business.
As of 2018, there were nearly 130,000 Americans incarcerated in private prisons.
It’s a multibillion-dollar industry.
There are two publicly traded private prison companies: The GEO Group (NYSE: GEO) and CoreCivic (NYSE: CXW).
The GEO Group’s Dividend Safety Overview
The GEO Group’s quarterly dividend had been $0.48 per share, but the company recently announced it was lowering the payout to $0.34. The cut is being used to pay down debt.
Even with the cut, The GEO Group sports a sky-high 12% yield. Can the company sustain that high of a yield, or is another cut coming?
The GEO Group is set up as a real estate investment trust (REIT), so we will look at adjusted funds from operations (AFFO) as the measure of cash flow when rating its safety in SafetyNet Pro.
In the first six months of the year, The GEO Group generated $1.21 per share in AFFO, which easily covers the dividend.
For the full year, management expects AFFO to be between $2.29 and $2.33 per share, which (again) more than covers the $1.36 per share in annual dividends expected going forward.
That AFFO number comes out to $274 million, which is a decline from last year’s $328 million and the lowest figure in several years.
That’s not surprising given the extra measures and costs incurred from trying to prevent and treat COVID-19 in prisons.
Looking purely at the numbers, there is a moderate risk of another cut in the near future.
One last thing to consider is the election. Joe Biden has said that he will end the use of private companies to house prisoners and undocumented immigrants. President Obama had the same policy, which was reversed by President Trump.
Should Biden win, that could impact The GEO Group’s revenues and cash flow going forward.
Dividend Safety Rating: C
The GEO Group’s dividend safety is moderate at the current moment. There is some risk of another cut depending on the outcome of the election. For more information on the latest dividend ratings, sign up for the Wealthy Retirement e-letter below.
About Marc Lichtenfeld
Marc Lichtenfeld is the Chief Income Strategist of Investment U’s publisher, The Oxford Club. He has more than three decades of experience in the market and a dedicated following of more than 500,000 investors.
After getting his start on the trading desk at Carlin Equities, he moved over to Avalon Research Group as a senior analyst. Over the years, Marc’s commentary has appeared in The Wall Street Journal, Barron’s and U.S. News & World Report, among other outlets. Prior to joining The Oxford Club, he was a senior columnist at Jim Cramer’s TheStreet. Today, he is a sought-after media guest who has appeared on CNBC, Fox Business and Yahoo Finance.
Marc shares his financial advice via The Oxford Club’s free daily e-letter called Wealthy Retirement and a monthly, income-focused newsletter called The Oxford Income Letter. He also runs four subscription-based trading services: Technical Pattern Profits, Penny Options Trader, Oxford Bond Advantage and Predictive Profits.
His first book, Get Rich with Dividends: A Proven System for Earning Double-Digit Returns, achieved bestseller status shortly after its release in 2012, and the second edition was named the 2018 Book of the Year by the Institute for Financial Literacy. It has been published in four languages. In early 2018, Marc released his second book, You Don’t Have to Drive an Uber in Retirement: How to Maintain Your Lifestyle without Getting a Job or Cutting Corners, which hit No. 1 on Amazon’s bestseller list. It was named the 2019 Book of the Year by the Institute for Financial Literacy.
