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.

Loan Loss Previsions for the GEO Group's dividend safety

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


Loan Loss Previsions


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.