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GEO Group: Considering Whether A Dividend Cut Is On The Horizon

Published Thu, 25 Jun 2020 15:29:21 -0400 on Seeking Alpha

Seeking AlphaLong Ideas | ServicesĀ GEO Group: Considering Whether A Dividend Cut Is On The HorizonJun. 25, 2020 3:29 PM ET|| About: The GEO Group, Inc. (GEO), Includes: CXWby: Albert LinAlbert Lin Contrarian, value, long only, growth at reasonable priceSummaryGEO shares have been down in sympathy with CoreCivic's decision to eliminate dividends to improve its capital structure.
Investors are intuitively correct to assume the same decision being made by GEO, but this article discusses several factors that may suggest otherwise.
Risk/reward still looks attractive in today's expensive market given the highly negative sentiment that has led to a forward price to AFFO of 5.3x.
Just when everyone thinks private prisons are about one of the safest investments during a highly uncertain environment caused by Covid-19, CoreCivic (CXW), the largest correctional facility operator in the U.S., has just delivered a major blow to investors by suspending its dividends to improve its "long-term cost of capital and shareholder value." Despite management's confidence in the reliability of the company's cash flows during the last earnings call, this unfortunate announcement came rather quickly in just over a month. As a GEO Group (GEO) shareholder myself, I can't stop asking the same question: is there going to be a dividend cut? While it does seem intuitively sensible to assume a similar decision by GEO, I would like to explore a few factors that may or may not contribute to a different outcome of the story.
The CEO has been buying
One thing that quickly differentiates GEO's situation from that of CoreCivic is the significant amount of insider buying primarily by GEO's George Zoley. Since February this year, the CEO has purchased ~670K shares at an average price of $15.34 per share totaling $10 million. This has increased Zoley's stake to 2.75 million shares, which represent ~2.3% of total shares outstanding. In contrast, there has been no record of insider buying... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
CORECIVIC 18.06   12.0 1.51 1.76 9.83


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