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Thoughts on the Gladstone Companies

- By Jonathan Poland

The organizations founded by David Gladstone add up to a massive nest egg across four publicly traded holdings:

  • Gladstone Capital Corp. (GLAD) at $9.33.
  • Gladstone Investment Corp. (GAIN) at $9.21.
  • Gladstone Commercial Corp. (GOOD) at $21.72.
  • Gladstone Land Corp. (LAND) at $13.55.

Gladstone has an impressive background, including chairman and CEO of Allied Capital Corp., which is now part of Ares Capital (ARCC). With his big four, Gladstone has built a strong base of profit and growth with each company paying a solid dividend. He has significant stakes in Gladstone Capital, Glastone Investment and Gladstone Land.

Gladstone Capital pays a 9% dividend, has just 15% institutional ownership and is trading at seven times earnings on a market capitalization of $244 million. The company has paid out a steady dividend of 84 cents since 2010. This vehicle is not for an investor looking to see a double in the next year, but if it continues to buy small to middle-market businesses and can build earnings and book value in the process, investors are likely to see much higher valuations at some point in the future. In the meantime, the 9% dividend alleviates the stress of stagnation.

Gladstone Investment pays an 8.34% dividend, has just 20% institutional ownership and is trading at 10 times earnings on a market capitalization just shy of $300 million. Unlike Gladstone Capital, the company has gone from $28 million in sales circa 2008 to over $51 million in the last 12 months, paying out a steady dividend the entire time, albeit slightly lower now.

Gladstone Commercial pays an 6.89% dividend, has 50% institutional ownership and a market capitalization over $600 million. This is an interesting holding because it typically reports a net loss, but has paid out $1.50 in annual dividends for the last decade. Granted, dividends come from cash flow and the company is a REIT specializing in long-term commercial (e.g., office and industrial) properties. The company currently owns 95 properties totaling more than 10.9 million square feet across 24 states. Since 2010, its real estate assets have more than doubled, from $411 million to $852 million, but so has its long-term debt. What I keep coming back to with this company is why Jim Simons (Trades, Portfolio)' Renaissance Technologies keeps adding to its position. The firm now has just over 2 million shares, or 7.17% of the company.

Gladstone Land is the newest public vehicles in the Gladstone portfolio. It generates $21 million in revenue on $334 million in assets, which are spread across eight states, 71 farms and 61,000 acres. It leases parcels of the properties to oil companies, helping it pay out close to 4% in dividends on a market capitalization of $178 million.

If these four companies were a single organization, it would have a price tag north of $1.3 billion. Thanks to the public markets, you can disregard Gladstone Land and focus on the better holdings. Both Gladstone Capital and Gladstone Investment are paying enough in dividends with the future of business growth to justify a small position. Gladstone Commercial may be worth a flyer just because Simons' firm is in it, but could be the best of the bunch considering the occupancy rates and potential for increased rents over time.

Disclosure: I am not long or short any stocks mentioned in this article.

This article first appeared on GuruFocus.