Gladstone Commercial Corp. (Nasdaq: GOOD) has an optimistic ticker symbol, but when it comes to the company’s finances and its ability to afford its dividend, it should consider a change.
Gladstone is a real estate investment trust that owns and rents out 151 industrial and office properties in 27 states.
For example…
- It leases 241,000 square feet to Berry Global in Jackson, Tennessee
- It leases 115,000 square feet to Eastern Metal Supply Holdings in Charlotte, North Carolina
- It leases 120,000 square feet to Corning in Horseheads, New York.
Last year, funds from operations (FFO), a measure of cash flow used by REITs, grew by 0.8% to $59.2 million. This year, the growth rate is expected to be nearly identical, as FFO is forecast to rise to $59.7 million. However, that is still lower than 2022’s $60.6 million.
Safety Net wants to see cash flow growth over both one- and three-year periods.
The numbers are close, though, so if FFO comes in a little over expectations, it could show positive growth over three years.
The bigger problem is Gladstone Commercial pays out more in dividends than it takes in.
Last year, the company paid shareholders $62.8 million while generating $59.2 million in FFO. In other words, it paid $1.06 in dividends for every $1 in FFO.
This year, that’s forecast to dip to $1.04.
We always want dividends paid to be below cash flow. Otherwise the company has to dip into cash, borrow money, or sell stock to afford the difference.
Gladstone Commercial pays a $0.10 monthly dividend, which comes out to an impressive 11% yield.
However, there was a cut recently. At the beginning of 2023, management lowered the dividend to the current rate from $0.1254 per share.
So the company can’t afford its dividend, and management showed a willingness to cut the payout less than three years ago.
Until FFO exceeds what the company is paying out, Gladstone Commercial’s dividend is not safe.
Dividend Safety Rating: F
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