Up to date on April 2nd, 2025 by Felix Martinez
Actual Property Funding Trusts have a lot to supply traders who need increased funding revenue, together with retirees. For example, Gladstone Business Company (GOOD) is a REIT with a excessive dividend yield of seven.9%.
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Gladstone Business seems to be a horny dividend inventory, particularly contemplating the accessible alternate options. The S&P 500 Index, on common, has a couple of ~1.3% dividend yield. Plus, Gladstone Business pays its dividends every month.
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Nonetheless, Gladstone Business’s dividend is way from assured. Its payout ratio is nearly 85%, leaving little room for error in sustaining the dividend.
This text will talk about the belief’s enterprise mannequin and monetary efficiency and clarify why its dividend could also be riskier than it first seems.
Enterprise Overview
Gladstone Business is a Actual Property Funding Belief, or REIT, that invests primarily in single-tenant and anchored multi-tenant web leased belongings. It owns 16.2 million sq. ft of workplace and industrial actual property within the U.S.
Gladstone Business has a really diversified portfolio. As of the tip of December 2022, the belief’s portfolio consisted of 135 properties in 27 states, leased to over 106 totally different tenants in 19 industries.
Supply: Investor presentation
The belief’s portfolio is often geared towards long-term agreements. As well as, Gladstone Business enjoys excessive occupancy charges, together with a present charge of 98.5%. Impressively, occupancy has by no means fallen beneath 95% for the reason that belief’s IPO in 2003.
Roughly 53% of Gladstone Business’s tenants are rated funding grade or are the non-rated funding grade equal. This contributes to a high-quality portfolio of tenants that ought to climate minor financial downturns and protect Gladstone Business’s hire streams.
Gladstone Business Company reported its fourth-quarter and full-year 2024 monetary outcomes. The full working income for This autumn 2024 was $37.4 million, down 4.7% from Q3. Web revenue declined by 38.6% to $7.2 million resulting from decreased property gross sales positive factors and better impairment costs. Funds from operations (FFO) accessible to widespread shareholders have been $15.3 million ($0.35 per share), a 5.6% drop from Q3. Core FFO fell 5.9% to $15.3 million ($0.35 per share), impacted by the absence of a previous quarter’s settlement acquire.
For the complete 12 months, whole working income elevated 1.2% to $149.4 million, whereas web revenue surged to $24.0 million from $4.9 million in 2023 resulting from lowered impairment costs. FFO reached $59.7 million ($1.41 per share), a slight 0.8% improve, whereas Core FFO rose 0.5% to $60.2 million ($1.42 per share). The corporate maintained a 100% hire assortment charge and paid $1.20 per share in widespread dividends.
Key transactions included buying seven totally occupied properties for $26.8 million, promoting seven non-core properties for $39.0 million, and issuing $75.0 million in senior unsecured notes at a 6.47% fastened rate of interest. Gladstone additionally leased 1.8 million sq. ft of vacant house and renewed 1.1 million sq. ft, supporting long-term occupancy and money stream stability.
Progress Prospects
The belief has generated spectacular income development up to now, however bottom-line development has leveled off currently. This creates some uncertainty relating to the distribution’s security. FY2025 core FFO expectations are flat.
Gladstone’s FFO-per-share has been between $1.40 and $1.60 for a lot of the previous decade because the belief continues to situation new shares and debt to fund acquisitions. Nonetheless, these acquisitions fail to offer an financial acquire for shareholders after accounting for share issuance and price of debt. In different phrases, whereas the belief’s new properties present development on a greenback foundation, when the price of these acquisitions is factored in, it’s basically no acquire on a per-share foundation.
Given the place the distribution is at present, that might current an issue because the belief’s payout ratio is approaching 100%. Nonetheless, regardless of the favorable fundamentals of the belief’s portfolio, its headwinds to earnings development (dilution and working bills) are nonetheless very a lot current.
Nonetheless, the corporate has efficiently grown its asset base at a double-digit annual compound development charge within the final decade. And since 2003, the portfolio has maintained excessive occupancy exceeding 95%.
With restricted lease expirations in 2025, the corporate is targeted on development. They’re enthusiastic about rising the portfolio’s industrial allocation. At the moment, industrial properties account for roughly half of the portfolio. Workplace properties make up a lot of the the rest, with retail and medical places of work rounding it out.
Dividend Evaluation
Gladstone Business’s present month-to-month dividend cost is $0.10 per share. On an annualized foundation, the dividend cost is $1.20 per share, which is good for a excessive 7.9% dividend yield.
The distribution has been stagnant at $0.125 per share month-to-month since January 2008, reflecting the belief’s struggles with development. Nonetheless, just lately, the corporate determined to chop the dividend, lowering the month-to-month cost to $0.10 per share in January 2023.
To its credit score, Gladstone Business has paid month-to-month dividends for greater than 16 consecutive years, a powerful monitor document of constant payouts.
Since Gladstone Business’s 2003 preliminary public providing, the belief has not missed a distribution or lowered it till just lately, which continues to be fairly spectacular for a REIT given the big range of financial circumstances which have existed on this time-frame.
One other essential consideration when shopping for dividend shares is steadiness sheet energy.
An excessive amount of debt can jeopardize a belief’s dividends. On a constructive word, Gladstone Business has labored to scale back its leverage considerably over the previous a number of years and now has a balanced maturity schedule. Moreover, its lowered dividend payout degree will additional ease the burden on its steadiness sheet.
Supply: Investor Presentation
About 97% of Gladstone Business’s debt is both fixed-rate or hedged, which may assist mitigate the impression of risky rates of interest.
As well as, vital maturities are a number of years away, which means the belief has time to generate money to pay them off or discover higher methods to refinance them.
If the belief’s fundamentals deteriorate over the following few years, there’s a probability it might not be capable to maintain its dividend, even on the lowered present degree. We see this because the principal threat of proudly owning Gladstone Business at present.
Last Ideas
Gladstone Business’s very excessive dividend yield is enticing and seems to be sustainable, at the very least within the close to time period, given the belief’s present degree of FFO. The belief additionally enjoys excessive occupancy and robust rental charges.
Consequently, traders might want to monitor the belief’s outcomes carefully to make sure FFO doesn’t decline a lot from current ranges. Certainly, even a modest decline may jeopardize the dividend.
Gladstone’s yield is enticing to revenue traders, however there seems to be little in the best way of earnings development. The month-to-month cost schedule is a bonus with the excessive yield, however traders should take note of outcomes and monitor the payout ratio.
Don’t miss the sources beneath for extra month-to-month dividend inventory investing analysis.
And see the sources beneath for extra compelling funding concepts for dividend development shares and/or high-yield funding securities.
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