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 (
) 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
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
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 (
) is awaiting a ruling from the IRS on its plan to become a
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
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.