Gladstone Commercial Corporation: REIT With A 6.9% Dividend Yield, But Tread Carefully

GOOD has paid 147 consecutive monthly cash distributions.

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GOOD Dividend

Source: Quarterly Presentation, page 9

Since GOOD’s 2003 initial public offering, the company has not missed a distribution, nor has it reduced the distribution at any time.

The company has not increased the dividend since 2008, which means the stock is less attractive for investors interested in dividend growth.

Another important consideration when buying dividend stocks is balance sheet strength. It is critical to analyze a company’s financial position.

Too much debt can jeopardize a company’s dividends. On a positive note, GOOD has significantly reduced its leverage over the past several years, and now has a balanced maturity schedule.

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GOOD Debt

Source: May 2017 REIT Week Presentation, page 18

Mortgage debt, which is the company’s largest source of debt financing, has a 4.66% weighted average interest rate.

Approximately 70% of GOOD’s debt is fixed-rate, which could help mitigate the impact of rising interest rates.

Still, there is not much room for error, because the company maintains a high payout ratio. 2016 diluted FFO-per-share of $1.55 only barely covers GOOD’s $1.50 per share annual distribution.

This means there is very little wiggle room for GOOD’s FFO.

If the company’s fundamentals deteriorate over the next few years, there is a chance GOOD may not be able to sustain its dividend at the current level.

Final Thoughts

GOOD’s high dividend yield is attractive, and appears to be sustainable given the company’s current FFO generation. And, only 4% of GOOD’s forecasted rental income expires through 2019.

But even this relatively low amount could have an impact on the company, given its very high payout ratio.

As a result, investors will need to monitor the company’s results closely, to make sure FFO does not decline much from present levels. Even a modest decline could jeopardize the dividend.

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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