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Use it or lose it. That’s the message Congress has for government agencies as it considers HR 6241, the Federal Use it or Lose it Leases (FULL) Act. Since the pandemic, most government office employees have continued to work from home.

Earlier this year, a Government Accountability Office survey found that 17 out of 24 government agencies were using less than 25% of the space in their headquarters buildings. Some were using as little as 9%. So, now Congress is telling them to stop wasting money.

Federal agencies spend almost $2 billion each year to maintain their offices. If this bill passes, they would have to give up any buildings that are used less than 60%. That’s going to add even more empty buildings to the list of vacant offices around the country.

Today, I’ll show you why the FULL Act is a threat to one company’s business and why you should keep this sucker yield out of your portfolio.

Avoid This Sucker Yield

One company that’s sure to lose out from the FULL Act is Easterly Government Properties (DEA). Easterly is a real estate investment trust (REIT) that owns a lot of government office buildings. Agencies that aren’t using their office space will be looking to cut back. And 10% of Easterly’s leases expire in the next two years…

Those are leases that are at high risk of being either canceled or renewed at a lower rate. With that in mind, Easterly’s high yield of 8% is showing all the warning signs of a sucker yield.

While there are exceptions to the rule, dividend stocks that have high yields of 8%, 9%, and 10% or more are usually sucker yields. Dividend yields only get that high when the market has no faith in the companies paying them. And more often than not, those dividends end up getting cut.

So let’s examine Easterly’s sucker yield warning signs:

• Abnormally high yield – Easterly’s current yield is over 8%. Historically, its average yield has been closer to 5%. The high yield it has is not because the company increased its dividend. Instead, it’s because its share price has gone down. The market doesn’t like the company’s prospects and has been selling.
• High payout ratio – Easterly’s dividend payout is 107% of its adjusted funds from operations (AFFO). AFFO is a financial metric that shows how much cash is available to shareholders. A payout ratio of over 100% means that the company is handing out more dividends than the cash it’s bringing in. That’s not going to last very long.
• Excessive debt – Easterly’s debt puts its leverage at over 7x. That’s really high. And more than 13% of its debt is coming due next year in 2024. When the company takes out new loans to refinance the debt that’s maturing, its interest rate will increase. That leaves even less cash for paying dividends.
• Declining revenue – Easterly’s rental income has been dropping throughout 2023. And with Congress telling government agencies to give up unused offices, more of Easterly’s leases could be on the chopping block.

Easterly is one of those hidden traps you should avoid. Don’t be suckered by its high yield.

Don’t Be a Sucker – Add This to Your Portfolio Instead

We focus on the best income opportunities on the market. My team and I use our decades of real estate and stock market experience to separate the safe investments from the hidden traps. So, if you see the same warning signs in other investments that you own, those could be sucker yields to avoid as well.

As the saying goes: If you’re playing poker and you can’t tell who the sucker is, it’s you. The same thing applies to dividend investing. If you can’t see the promise of future growth for a company but a high yield is there, that’s a trap you want to avoid.

Don’t be the sucker and fall for a sucker yield. Instead, consider investing in a reliable dividend grower. Like my favorite REIT, Realty Income (O). It just increased its dividend for the fifth time this year.

Unlike Easterly, Realty Income’s 76% payout ratio is sustainable. Its rental income is still growing every year. And its 5x leverage means debt levels are much lower. Realty Income has been rewarding shareholders with a growing income for 30 years, and currently yields 5.4%. And since shares have recently been trading at a 22% discount, it could be a good time to buy.

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