Gladstone Commercial Corporation (NASDAQ:GOOD) is a rare dividend stock. While many companies deliver dividends quarterly, Gladstone Commercial is one of the few that do so each month.

That alone is enough to make investors take notice. But is it a compelling reason to invest? Let's break down Gladstone's pros and cons.

A blackboard with the word "dividends" written at its center, surrounded by finance-related sketches.

Image source: Getty Images.

Gladstone's positives

Gladstone Commercial is a real estate investment trust (REIT) that rents commercial properties to businesses like General Motors and Morgan Stanley. Since REITs are required to distribute a minimum 90% of taxable income to shareholders, Gladstone Commercial offers a high dividend yield of 6.91%. It's also paid that dividend consistently for over the past 177 months (almost 15 years).  

Gladstone's portfolio of properties is diverse. As of its Q3 earnings report, the company owned 109 properties in 24 states. It has since announced further purchases, which will add to the company's revenue growth. Given the cuts to interest rates this year, now is a good time for the company to buy more properties.

Gladstone's tenants are also diverse, with businesses from 19 different industries. The company carefully evaluates each tenant to ensure the rent can be paid. As a result, its occupancy rate has never fallen below 96% and currently sits at 98%. Its average remaining lease term is 7.2 years, so the company can look forward to several years of continued income.  

Another positive is that Gladstone Commercial has worked to reduce its leverage, which represents how much debt the company has taken on. Its net debt relative to gross assets was 45.9% as of Q3, a reduction from last year's 46.8%, the eighth consecutive year of declining leverage. Moreover, nearly 66% of its debt is at a fixed interest rate, meaning when interest rates rise, the bulk of its debt won't be affected. 

Gladstone's negatives

While there are many positives about the company, Gladstone does have its downsides. Although dividend payouts have been consistent, there's been no growth in that dividend for over a decade.  

During the company's Q3 earnings call, CEO David Gladstone indicated a desire to raise the dividend at some point, but that will be a challenge. The company's Q3 funds from operations (FFO) per share, a REIT's equivalent to earnings per share, were $0.39 while its distributions were $0.375 per share. This 96% payout ratio is not unusual for a REIT, but it leaves little wiggle room if FFO should decline.

As a result, when the next recession hits, Gladstone could be forced to cut its dividend (although it did weather the last recession without impact to its dividend). In addition, when interest rates eventually rise, it will have increased costs due to the floating-rate portion of its debt. 

What conclusions can we draw?

Like all companies, Gladstone Commercial has its benefits and risks, yet for the long-term investor, its positives outweigh the negatives.

Management is reducing leverage, and its diverse list of properties and high-quality tenants are locked in for years. It has proved its dedication to the monthly dividend (even during the Great Recession) as well as that dividend's high yield. And Gladstone continues to expand into more properties, with its FFO increasing to $36.2 million in the first three quarters of 2019 from $34.6 million in the year-ago period.

It all combines to make this good stock a dividend winner thanks to its solid track record and the likelihood of continued dividend payments for the next several years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.