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GEO Group Benefits From Trump Deportation Ramp-Up
The GEO Group (NYSE:GEO) won a government contract for a new 1000-bed facility on Thursday.
Coincident with this, the Washington Post reported that the Trump administration had worked up assessments for ramping up his program for deportation of illegal immigrants. They are looking to hire 5000 to 10,000 new enforcement agents.
In addition, they have identified some 33,000 detention beds for the purpose of holding these people until their ultimate fate is decided by the courts.
"An internal Department of Homeland Security assessment obtained by The Washington Post shows the agency has already found 33,000 more detention beds to house undocumented immigrants, opened discussions with dozens of local police forces that could be empowered with enforcement authority and identified where construction of Trump's border wall could begin."
Source: Daily KOS
In addition, the assessment was said to include Trump's desire to "speed up the hiring of hundreds of new Customs and Border Patrol officers" by "ending polygraph and physical fitness tests in some cases, according to the documents."
Prepared by the Department of Homeland Security, interested readers can read the government assessment in full.
The GEO Group, A Direct Beneficiary
The GEO Group, one of the portfolio constituents in our Fill-The-Gap Portfolio, will be a direct beneficiary of today's news.
The new business comes from U.S. Immigration and Customs Enforcement, and it's for the development and operation of a new $110M, company-owned detention facility to be located in Conroe, TX.
The GEO Group expects to aggregate everything under a 10-year contract with ICE, inclusive of renewal option periods.
The project is expected to generate around $44 million in annual revenues, a return on investment consistent with GEO's other company-owned facilities. Over the ten year length of this contract, GEO will be booking $440 million of additional revenue.
While the broad market gauges closed down .67% on Thursday, the day of these announcements, market participants recognized the boost to GEO's earnings prospects by lifting its shares another 1.5% during the day. They closed up 1.06%, at $47.80 per share.
New Share Offering-New Sheriff in Town
When the company floated a new share offering around $42 a share a couple weeks ago, the shares sold off, approaching that level. Less than 2 weeks later, sentiment is reflecting excellent prospects going forward as the shares gained almost 15% in a very short time frame.
With interest rates continuing to come down, many of our portfolio investments, including GEO, are being looked at as safe haven, higher yield investments compared to U.S. Treasurys. The ten year Treasury rose in price again on Thursday, bringing its yield down further. Just recently, it traded with a 2.60% yield. By Thursday, it was yielding only 2.23%.
This 14% drop in yield, again in a short time span, has investors turning to other safe-haven investments with higher yield. REITs like GEO Group benefit from this migration.
GEO pays an annual dividend of $2.80 per share. At Thursday's closing price, this represents a dividend yield of 5.86%. This is fully 2.6 times the yield and income an investor can obtain from the ten year treasury. This widening of the yield gap adds to the increased attractiveness of the stock.
From Obama Phase-Out to Trump Ramp-Up
When investors were convinced that GEO Group was headed for extinction with Obama's directive to his agencies to wind down use of the private prisons, investors bailed out. Those who bought around $32 per share, saw the price collapse to $18 in a day's trading. I was one of those buyers at the $32 level, bulking up my core holdings which had been bought earlier for less. Figuring at the time that the government's business only represented some 11% of GEO Group's revenues, it seemed to me that this company would find its legs and continue offering and expanding its rehabilitation services, educational facilities and services in Australia and other locations internationally.
I did not bail and sell my holdings, figuring that this was a temporary situation and share price would recover and take care of itself while I continued to collect a robust stream of increasing dividends.
Since 2013, The GEO Group has been steadily increasing the dividend. It has progressed from $.50 quarterly, to $.55, $.57, $.62, $.65 and was most recently raised to $.70 quarterly just his past February 15, 2017. In four years, the dividend has grown 40% along with earnings growth.
In February of this year, I wrote, "Private Prison Company Soars With New Immigration Orders". It discussed how the clouds were beginning to lift for the company and the announcement of a 7.7% increase in the dividend. It was a pretty telling move by the board of directors, backing up their confidence in the company by a hefty increase in the dividend for shareholders.
On August 19 of 2016 I wrote, "Lock Up This 15.5% Yield On This Private Prison Company". In it, we discussed the "eviction" notice served on the company and the risks and rewards of investing in a battleground stock, then yielding 15.5% because of the price collapse that occurred with Obama's directives. Now, it's easy to see the change in market sentiment surrounding this company, beginning with the election last November and continuing without abatement till today. The price rose from $18 to $48 today, a 166% profit from price alone for investors who maintained their confidence and conviction in this company.
GEO Group Dividend Growth
GEO Group has been a constituent of our FTG Portfolio for some time now.
I use the Dividend Growth Monitor to keep me actively involved in the dividend production of our portfolio. When GEO raised the dividend 7.7% in February, I was able to input the new dividend and see its effect on overall portfolio income as well as perceive the percentage change and increase in annual income from GEO and the total portfolio as well. In addition, I could get feedback from the prior year to the current year to see if I was on track growing dividends as much as my projections.
Dividend Growth Monitor
The layout by ticker symbol, share count and month makes it very easy for me to locate the cell where data needs to be input. The frequency with which I enter data is completely up to me, whether it be on a monthly schedule when the brokerage statement arrives, or weekly. My preference is to navigate to my online brokerage account daily and take note of any dividends paid each day. I'll then enter that data into the Dividend Growth Monitor. Doing so on a frequent basis keeps me on top of developments in the Fill-The-Gap Portfolio and provides frequent feedback and positive reinforcement that I am reaching my goals.
In the graphic above, I've highlighted AT&T (NYSE:T) which is another core position in the FTG Portfolio, circled in red. In the top portion relating to dividends received in 2016, you can see that T paid a quarterly dividend of $.48 throughout the year. In the pink column on the right, annual totals for each ticker are automatically summed for us. We can see that T paid $1.92 for the year, and in the next column, our dollar dividend income based on the 200 shares held in the account shows we earned $384 in annual dividends from T last year.
At the bottom of the blue annual income column, the total dividend income earned on all of our tickers is automatically summed for us and shows it was $1,630.80.
Monthly dividend totals running at the bottom of each year in green show us actual dividends automatically added for us. Here is where I can begin to use monthly comparisons from one year to the next to begin to mine data important to dividend growth investors.
Notice that in January, 2017, AT&T increased its dividend paid to us. From $.48 paid in 2016, it raised the quarterly payout to $.49. This represented an increase of 2.08%. Because this increase was greater than inflation, I immediately get the feedback that this stock is fulfilling the goal set for it.
Comparing monthly totals from February 2016 of $.299 to the monthly total in February 2017 of $.321 clues us into our year-over-year dividend increase:
$.321 - $.299 = $.022
$.022/$.299 = 7.36%
Mining the data presented to me allows me to see clearly that year over year, from 2016 to 2017 we have managed to receive 7.36% more in dividend income. Since this is way above reported inflation of less than 2%, the positive feedback received from this data assures me I am accomplishing my goal.
Monthly total comparisons for March reveal that in 2017 we received $1.311 in dividends compared to 2016's total of just $1.254. Further analyzing this data we are again reinforced with very positive feedback.
$1.311 - $1.254= $.057
$.057/$1.254 = 4.55%
This data confirms for me that year over year, for the month of March, we have managed to grow income for the portfolio by 4.55%.
It is now apparent that on a quarterly basis we are increasing income by 3%, we are beating inflation and continuing to grow income of the overall portfolio. Should several dividend increases occur in 2017 (and the probability of this is great), the increase in annual income will be much greater.
Because this tool works on PC, Mac, tablets and smart phones that have Excel installed, or the free Open Office spreadsheet called Calc, available at openoffice.org, it is always available to use on all of my devices any time I want to use it.
The Fill-The-Gap Portfolio At A Glance
Two years ago, I began writing a series of articles on December 24, 2014, to demonstrate the real-life construction and management of a portfolio dedicated to growing income to close a yawning gap that so many millions of seniors and near-retirees face today between their Social Security benefit and retirement expenses.
The beginning article was entitled "This Is Not Your Father's Retirement Plan." This project began with $411,600 in capital that was deployed in such a way that each of the portfolio constituents yielded approximately equal amounts of yearly income.
The FTG Portfolio Constituents
Constructed beginning on 12/24/14, this portfolio now consists of 19 companies, including AT&T, Inc.(T), Altria Group, Inc. NYSE:MO), Consolidated Edison Inc. (NYSE:ED), Verizon Communications (NYSE:VZ), CenturyLink, Inc. (NYSE:CTL), Main Street Capital (NYSE:MAIN), Ares Capital (NASDAQ:ARCC), Reynolds American, Inc. (NYSE:RAI), Vector Group Ltd. (NYSE:VGR), EPR Properties (NYSE:EPR), Realty Income Corporation (O), Sun Communities Inc. (NYSE:SUI), Omega Healthcare Investors (NYSE:OHI), W.P. Carey, Inc. (NYSE:WPC), Government Properties Income Trust (NYSE:GOV), The GEO Group (NYSE:GEO), The RMR Group (NASDAQ:RMR), Southern Company (NYSE:SO) and Chatham Lodging Trust (CLDT).
Because we bought all of these equities at cheaper prices since the inception of the portfolio, the yield on cost that we have achieved is 6.60% since launch on November 1, 2015.
The stars continue to line up in favor of this company's future prospects. Just months ago, the Obama administration asked the Bureau of Prisons and the immigration enforcement agencies to wind down their use of private prison companies and their facilities, with the eventual aim of phasing them out completely.
Stock prices of private prison purveyors dropped off a cliff in response. What a difference a few months make. Out with the old, in with the new. There's a new sheriff in town and he wants to make good on his promise to deal with illegal immigration.
After a rise back to the $40's and a period of consolidation in that range, GEO Group shares appear ready to break out into the $50's soon.
I reiterate my buy rating on this stock.
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Disclaimer: This article is intended to provide information to interested parties. As I have no knowledge of individual investor circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.
This article was written by
Disclosure: I am/we are long T, MO, ED, VZ, CTL, MAIN, ARCC, RAI, VGR, EPR, O, SUI, OHI, WPC, GOV, GEO, RMR, SO, CLDT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.