Anyone who has been a landlord knows there’s nothing worse than having a deadbeat tenant. You always wonder when or if the rent will be paid. It’s miserable and rarely profitable.
Now… imagine having a renter who is all but guaranteed to pay on time.
That’s practically the case with Government Properties Income Trust (NYSE: GOV).
The real estate investment trust (REIT) rents out properties to the United States government. Unless the clowns in Congress shut the government down, the rent gets paid on time.
The company owns 71 properties in 31 states and the District of Columbia, including:
- The Woodmont Office Center – a six-story office building in Rockville, Maryland, leased to the U.S government
- 65 Bowdoin St. – a single-story building in Burlington, Vermont, rented by the U.S Department of Homeland Security
- 4712 Southpark Blvd. – building and warehouse space in Ellenwood, Georgia, leased to the National Archives and Records Administration.
Covering the Dividend
The best way to measure the dividend safety of a REIT is to compare its dividend payment to funds from operations (FFO), which is similar to cash flow. Remember, a REIT must pay out 90% of its earnings in the form of dividends. But earnings are not the same thing as cash flow or FFO.
We want to see if the FFO is enough to sustain the dividend, since FFO is a better representation of the amount of cash a REIT generates. Earnings can have all kinds of noncash-related expenses in the calculation – and that will have no bearing on whether the company can pay the dividend.
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In the first six months of the year, Government Properties Income Trust generated $1.18 per share in FFO. During that period, it paid out $0.86 per share. Last year at this time, the company’s FFO was $1.10, while the dividend payout was the same. So it has more of a cushion than it did last year.
Government Properties’ quarterly dividend has been the same since October 2012. It has paid a dividend since October 2009. That first dividend was $0.50 per share. The company cut the dividend to $0.40 the next quarter. Since then, the dividend has intermittently risen by a penny per share.
So currently, the company generates plenty of FFO to pay the dividend.
Wall Street predicts that, in 2015, Government Properties’ FFO will be $1.85 per share, though the company is on pace to exceed that number. In 2016, the forecast is $2.34. So it wouldn’t shock me to see a small raise next year if it looks like that $2.34 is within reach.
With healthy FFO more than covering the payout and a solid dividend payment track record, Government Properties Income Trust’s dividend looks pretty safe to me. I can’t give it my highest rating because it did cut the dividend in 2009, but it’s done enough since then to bolster my confidence.
Dividend Safety Rating: B
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Hoping your longs go up and your shorts go down,
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