Prison Stocks No Longer Hot: They're Going REIT


In the 1980s and '90s, private prisons were hot stocks, sometimes posting triple-digit earnings gains. Those days appear to be over.

The market's two private prison stocks are becoming REITs.

Geo Group ( GEO ) announced on Jan. 2 that it had completed the process to convert to a real estate investment trust, effective Jan. 1.

The REIT structure often leads to bigger dividend payouts, and that appears likely with Geo. In an early December news release, the small-cap company said it expected to pay an estimated dividend in 2013 of $2.20 to $2.40 a share.

By law, a REIT must pay out at least 90% of taxable income.

Geo paid a 20-cents-a-share quarterly dividend in November. On an annualized basis, the yield had been in the 3.5% range before the stock jumped on the REIT news.

At the current price, the estimated REIT payout would be about 7.2%.

Earnings for Geo have been steady but lackluster.

The five-year EPS Stability Factor is 9 on a scale of 0 (calm) to 99 (erratic). Earnings growth is expected to check in at 3%, when 2012 results are announced in February. The Street expects 6% EPS growth in 2013 on a less than 2% rise in revenue.

Given those realities, it's hard to imagine Geo as much beyond a yield play. The stock price did double last year, but that probably was related to the REIT-related speculation. From the start of the bull market in March 2009 through 2011, Geo lagged the indexes -- up 22% for Geo vs. 66% for the S&P 500.

Geo owns or operates 101 facilities in the U.S., Australia, the United Kingdom and South Africa.

Corrections Corp. of America ( CXW ) is awaiting a ruling from the IRS on its plan to become a REIT.

The midcap company said in a Jan. 2 news release that it has completed the necessary reorganization to qualify as a REIT.

The company operates 67 facilities in 20 states, including 47 company-owned units.

Apart from last year, the stock has mostly lagged the indexes. The annualized yield is 2.2%.

CCA has a five-year Stability Factor of 3. Earnings are expected to be flat for 2012 when posted in February. The Street estimates earnings will rise 5% this year on a less than 1% increase in revenue.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas

Referenced Stocks: CXW , GEO

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