The government shutdown may be raging on, but certain aspects are thankfully staying open, such as the Federal Reserve and the Securities Exchange Commission. And they're not the only ones: A couple of government-related companies are not only open through the shutdown, but have just announced plans for quarterly dividends. Is this a good idea, and should investors jump on board?
The lights are on but nobody's home
A real-estate investment trust can generally be counted on to offer a solid, consistent dividend payout, and private REIT Government Properties Income Trust (NYSE: GOV) is no exception. The company owns 82 properties throughout 31 states and the District of Columbia. Sixty-one of those properties are leased to the U.S. government, 18 are leased to state governments, and one is leased to the United Nations.
On Oct. 9, several days following the start of the shutdown, Government Properties declared its latest quarterly dividend of $0.43 per share, having upped its payout by a penny in Nov. 2012. The REIT's annual revenue from rental income has risen from $117.2 million to $211 million since 2010. Government Properties has also upped its yearly dividend amount almost 63% since 2010 to $82.8 million, but there's not a lot of cash left over as a result. By the end of last year, Government Properties only had $5.2 million in its coffers.
This shouldn't come as a huge surprise. Generally, REITs are required to pay out most of their net income as dividends. But right now Government Properties is in an uncertain situation. It's a private company, but because such a huge chunk of its portfolio is leased to the U.S. Government, if the shutdown debacle were to rage on for significantly longer, Government Properties might find itself with fewer tenants and more expenses, all while holding little cash. Some of its government tenants can also effectively terminate their leases whenever they need to, which could put the REIT in a sticky situation. This company's dividend pays out big, but it might be a safer bet once the government reopens its doors.
Take one dividend and call me in the morning
U.S. health care may be at the center of the shutdown maelstrom, but one company is experiencing all calm and no storm. Maximus (NYSE: MMS) is a business process servicer to government health agencies. It runs operations for programs like Medicaid, Medicare, the Children's Health Insurance Program, and, most recently, the Affordable Care Act (a.k.a. "Obamacare").
The company has most recently worked with Minnesota's health care exchange, MNSure, to create a consumer friendly website. Its user-friendliness is, at the moment, open to debate. MNSure's executive director has acknowledged some early "bumps in the road," including a server crash shortly after the site went live.
Bumps aside, Maximus made a cool $41.2 million through its Minnesotan contract. According to its last annual report, Maximus "has not experienced any material adverse change in demand as a result of government budgetary pressures." Perhaps ironically, Maximus has been able to stay open while elected officials have shut down the government as they argued over the very services it helps provide. Not only that, but on Oct. 8, a week after the shutdown started, Maximus announced plans to keep its quarterly dividend steady at $0.045 per share.
The timing seems daring, but the decision might be rooted in reason. Since 2009, Maximus has seen its annual revenue jump from $831 million to $1 billion. To keep investors on board, particularly at a time when health care is such a hot-button topic, Maximus has steadily upped the amount it has paid in dividends over the years from $8.3 million in 2010 to $12.1 million last year. Its cash flow has also increased in that time from $155 million to $189 million. The government may be in a state of chaos, but you'd never know it by looking at this company's financials.
Is one better than the other?
Even though both these companies can operate independently of the government, a prolonged shutdown could start to take a progressively more severe toll on their revenue streams, and there's no telling how long this latest episode will last.
Because so much of GOV's earnings are based on payments from its government tenants, investors may feel justifiably squeamish about hopping on board with this payout right now. For the dividend investor who absolutely has to own a company working with the government, Maximus seems the better pick of these two, but there's also no harm in seeing how this shutdown plays out before putting your pennies on this company, either.
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