Monthly Dividend Stock In Focus: Gladstone Commercial

Updated on April 2nd, 2025 by Felix Martinez

Real Estate Investment Trusts have much to offer investors who desire higher investment income, including retirees. For instance, Gladstone Commercial Corporation (GOOD) is a REIT with a high dividend yield of 7.9%.

You can see the full list of 5%+ yielding stocks by clicking here.

Gladstone Commercial appears to be an attractive dividend stock, especially considering the available alternatives. The S&P 500 Index, on average, has about a ~1.3% dividend yield. Plus, Gladstone Commercial pays its dividends each month.

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However, Gladstone Commercial’s dividend is far from guaranteed. Its payout ratio is almost 85%, leaving little room for error in maintaining the dividend.

This article will discuss the trust’s business model and financial performance and explain why its dividend may be riskier than it first appears.

Business Overview

Gladstone Commercial is a Real Estate Investment Trust, or REIT, that invests primarily in single-tenant and anchored multi-tenant net leased assets. It owns 16.2 million square feet of office and industrial real estate in the U.S.

Gladstone Commercial has a very diversified portfolio. As of the end of December 2022, the trust’s portfolio consisted of 135 properties in 27 states, leased to over 106 different tenants in 19 industries.

Source: Investor presentation

The trust’s portfolio is typically geared toward long-term agreements. In addition, Gladstone Commercial enjoys high occupancy rates, including a current rate of 98.5%. Impressively, occupancy has never fallen below 95% since the trust’s IPO in 2003.

Approximately 53% of Gladstone Commercial’s tenants are rated investment grade or are the non-rated investment grade equivalent. This contributes to a high-quality portfolio of tenants that should weather minor economic downturns and preserve Gladstone Commercial’s rent streams.

Gladstone Commercial Corporation reported its fourth-quarter and full-year 2024 financial results. The total operating revenue for Q4 2024 was $37.4 million, down 4.7% from Q3. Net income declined by 38.6% to $7.2 million due to decreased property sales gains and higher impairment charges. Funds from operations (FFO) available to common shareholders were $15.3 million ($0.35 per share), a 5.6% drop from Q3. Core FFO fell 5.9% to $15.3 million ($0.35 per share), impacted by the absence of a prior quarter’s settlement gain.

For the full year, total operating revenue increased 1.2% to $149.4 million, while net income surged to $24.0 million from $4.9 million in 2023 due to reduced impairment charges. FFO reached $59.7 million ($1.41 per share), a slight 0.8% increase, while Core FFO rose 0.5% to $60.2 million ($1.42 per share). The company maintained a 100% rent collection rate and paid $1.20 per share in common dividends.

Key transactions included acquiring seven fully occupied properties for $26.8 million, selling seven non-core properties for $39.0 million, and issuing $75.0 million in senior unsecured notes at a 6.47% fixed interest rate. Gladstone also leased 1.8 million square feet of vacant space and renewed 1.1 million square feet, supporting long-term occupancy and cash flow stability.

Growth Prospects

The trust has generated impressive revenue growth in the past, but bottom-line growth has leveled off lately. This creates some uncertainty regarding the distribution’s safety. FY2025 core FFO expectations are flat.

Gladstone’s FFO-per-share has been between $1.40 and $1.60 for most of the past decade as the trust continues to issue new shares and debt to fund acquisitions. Still, those acquisitions fail to provide an economic gain for shareholders after accounting for share issuance and cost of debt. In other words, while the trust’s new properties provide growth on a dollar basis, when the cost of those acquisitions is factored in, it is essentially no gain on a per-share basis.

Given where the distribution is today, that could present a problem as the trust’s payout ratio is approaching 100%. However, despite the favorable fundamentals of the trust’s portfolio, its headwinds to earnings growth (dilution and operating expenses) are still very much present.

Still, the company has successfully grown its asset base at a double-digit annual compound growth rate in the last decade. And since 2003, the portfolio has maintained high occupancy exceeding 95%.

With limited lease expirations in 2025, the company is focused on growth. They are interested in increasing the portfolio’s industrial allocation. Currently, industrial properties account for roughly half of the portfolio. Office properties make up most of the remainder, with retail and medical offices rounding it out.

Dividend Analysis

Gladstone Commercial’s current monthly dividend payment is $0.10 per share. On an annualized basis, the dividend payment is $1.20 per share, which is good for a high 7.9% dividend yield.

The distribution has been stagnant at $0.125 per share monthly since January 2008, reflecting the trust’s struggles with growth. However, recently, the company decided to cut the dividend, reducing the monthly payment to $0.10 per share in January 2023.

To its credit, Gladstone Commercial has paid monthly dividends for more than 16 consecutive years, an impressive track record of consistent payouts.

Since Gladstone Commercial’s 2003 initial public offering, the trust has not missed a distribution or reduced it until recently, which is still pretty impressive for a REIT given the wide array of economic conditions that have existed in this time frame.

Another important consideration when buying dividend stocks is balance sheet strength.

Too much debt can jeopardize a trust’s dividends. On a positive note, Gladstone Commercial has worked to reduce its leverage significantly over the past several years and now has a balanced maturity schedule. Furthermore, its reduced dividend payout level will further ease the burden on its balance sheet.

Source: Investor Presentation

About 97% of Gladstone Commercial’s debt is either fixed-rate or hedged, which could help mitigate the impact of volatile interest rates.

In addition, significant maturities are several years away, meaning the trust has time to generate cash to pay them off or find better ways to refinance them.

If the trust’s fundamentals deteriorate over the next few years, there is a chance it may not be able to sustain its dividend, even at the reduced current level. We see this as the principal risk of owning Gladstone Commercial today.

Final Thoughts

Gladstone Commercial’s very high dividend yield is attractive and appears to be sustainable, at least in the near term, given the trust’s current level of FFO. The trust also enjoys high occupancy and strong rental rates.

As a result, investors will need to monitor the trust’s results closely to ensure FFO does not decline much from present levels. Indeed, even a modest decline could jeopardize the dividend.

Gladstone’s yield is attractive to income investors, but there appears to be little in the way of earnings growth. The monthly payment schedule is a bonus with the high yield, but investors must pay attention to results and monitor the payout ratio.

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