Monthly Dividend Stock In Focus: Gladstone Commercial

Up to date on June 2nd, 2021 by Bob Ciura

Actual Property Funding Trusts have quite a bit to supply buyers who want larger ranges of funding revenue, corresponding to retirees. For example, Gladstone Industrial Company (GOOD) is a REIT with a excessive dividend yield of 6.8%.

You possibly can see the complete record of 5%+ yielding shares by clicking right here.

Gladstone Industrial seems to be a gorgeous dividend inventory, particularly contemplating the accessible alternate options. The S&P 500 Index, on common, has a few ~1.4% dividend yield. Plus, Gladstone Industrial is certainly one of solely 54 shares that pays its dividend every month.

You possibly can obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter like dividend yield and payout ratio) by clicking on the hyperlink beneath:

Nonetheless, Gladstone Industrial’s dividend is way from assured. Its payout ratio is sort of 100%, leaving little room for error on the subject of sustaining the dividend.

This text will talk about the belief’s enterprise mannequin and monetary efficiency, and why its dividend could also be riskier than meets the attention.

Enterprise Overview

Gladstone Industrial is a Actual Property Funding Belief, or REIT, that invests primarily in single-tenant, and anchored multi-tenant web leased belongings. It owns 15.5 million sq. ft of workplace and industrial actual property within the U.S.

Gladstone Industrial has a really diversified portfolio. As of the tip of March, the belief’s portfolio consisted of 120 properties in 27 states, leased to a 107 totally different tenants.

Supply: Investor presentation

The belief’s portfolio is usually geared towards long-term agreements. As well as, Gladstone Industrial enjoys excessive occupancy charges, together with a present fee of 95.5%. Impressively, occupancy has by no means fallen beneath 95% because the belief’s IPO in 2003.

Roughly 56% of Gladstone Industrial’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 Industrial’s hire streams.

The belief has generated spectacular income development up to now, however development of the underside line has leveled off recently. This creates some stage of uncertainty with regard to the distribution’s security.

Progress Prospects

Gladstone reported first quarter earnings on Might 10th, 2021, and outcomes have been higher than anticipated on each the highest and backside strains. Core funds–from–operations, or FFO, got here to $15.4 million, a 15% enhance from the prior quarter. Core FFO was up primarily on account of a rise in lease income from new acquisitions, partially offset by a rise in curiosity expense, which was from larger charges on variable fee debt.

Gladstone collected 98% of money rents through the first quarter throughout Q1. It additionally acquired a 180k square foot industrial facility in Ohio for $11.1 million, which is 100% leased to a single tenant for 14 years.

It offered two properties for whole proceeds of $5.5 million, and renewed leases on 193k sq. ft on two current properties. Gladstone additionally leased 189k of vacant sq. ft for five.2 years at one property.

After Q1, the belief mentioned it collected 98% of base April rents, and that occupancy was 95% as of the tip of April.

Gladstone’s FFO–per–share has been between $1.50 and $1.60 for many of the previous decade because the belief continues to challenge new shares and debt to fund acquisitions, however these acquisitions fail to supply an financial acquire. 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 primarily 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 may be very near 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.

Dividend Evaluation

Gladstone Industrial has a present month-to-month dividend fee of $0.12515 per share. On an annualized foundation, the dividend fee is $1.5018 per share, good for a 6.8% dividend yield.

The distribution had been stagnant at $0.125 per share month-to-month since January of 2008, reflecting the struggles the belief has had with respect to development. Nonetheless, the distribution acquired a fractional increase earlier in 2020 to the brand new stage of $0.12515 cents per share month-to-month.

To its credit score, Gladstone Industrial has paid month-to-month dividends for greater than 15 consecutive years, a powerful monitor document of constant payouts, though the distribution has been principally flat for greater than a decade.

Since Gladstone Industrial’s 2003 preliminary public providing, the belief has not missed a distribution, nor has it lowered the distribution at any time, which may be very spectacular for a REIT given the big range of financial circumstances which have existed on this time-frame.

One other vital consideration when shopping for dividend shares is steadiness sheet energy.

An excessive amount of debt can jeopardize a belief’s dividends. On a optimistic observe, Gladstone Industrial has labored to considerably scale back its leverage over the previous a number of years, and now has a balanced maturity schedule.

Supply: Investor Presentation

Roughly two-thirds of Gladstone Industrial’s debt is fixed-rate, which might assist mitigate the impression of risky rates of interest.

As well as, massive maturities are a number of years away, that means the belief has time to generate money to pay them off, or discover higher methods to refinance them.

Nonetheless, there may be not a lot room for error as a result of the belief maintains a excessive payout ratio. We see FFO of $1.59 per share, which might barely cowl the annualized dividend payout of $1.50 per share.

This implies there may be little or no wiggle room for Gladstone Industrial’s FFO on the subject of overlaying the distribution.

If the belief’s fundamentals deteriorate over the following few years, there’s a probability it could not be capable to maintain its dividend on the present stage. We see this because the principal threat of proudly owning Gladstone Industrial at present.

Ultimate Ideas

Gladstone Industrial’s very excessive dividend yield is engaging and seems to be sustainable, at the least within the near-term, given the belief’s present stage of FFO. The belief enjoys excessive occupancy and powerful rental charges as effectively. However given the ~100% payout ratio, we nonetheless have issues about Gladstone’s dividend security.

Consequently, buyers might want to monitor the belief’s outcomes carefully to verify FFO doesn’t decline a lot from current ranges. Certainly, even a modest decline might jeopardize the dividend.

Gladstone’s yield is engaging, but it surely carries an elevated threat of a minimize within the coming years, notably if the present recession is worse than anticipated or drags on for a chronic interval.