Enter a new growth industry for the 21st century: private prisons.
Corrections Corp (NYSE:CXW). of America and Geo Group (NYSE:GEO) are two of these companies. Both companies, founded in the early 1980s, capitalized on the “war on drugs” in the 1980s and 1990s, which brought in a rapid influx of drug offenders that caused state prisons to overflow. Over the past decade, Corrections Corp. and Geo have also profited from locking up illegal immigrants, as part of an aggressive federal initiative to deter illegal immigration.
Have they been profitable? From the following chart, I’d say the answer is a definite ‘yes’.
Both Corrections Corp. and Geo Group also recently converted themselves to REITs (real estate investment trusts), where 90% of taxable income must be redistributed to shareholders as dividends, in exchange for lower tax rates.
This bumps Corrections Corp.’s dividend up to $2.12 annually – a 5.5% yield, while Geo Group pays $2.00 annually, or 5.6%. Those fat yields, coupled with robust price growth over the past five years, make these investments appear fairly attractive to income investors.
The Foolish Bottom Line
Now that prisons have become a large, legal source of cheap domestic labor, is it ethical to invest in the industry?
In my opinion, the prison-industrial complex isn’t as amoral as liberal pundits make it out to be – since much of the work is voluntary, and the wages, while low, are still higher than those of in-house prison jobs. Yet outsourced prison labor isn’t as harmless as conservative supporters claim it to be. UNICOR has been accused of exposing prisoners to toxic substances in its electronics recycling operations.
Regardless of your view on prison labor, the harsh reality is that America’s prison-industrial complex is rapidly growing, and that labor is now growing symbiotically with corporate America, due to competition from cheap labor in Southeast Asia and other emerging markets. This fact will remain constant for the foreseeable future, and redefine what it truly means to be “Made in the U.S.A.”
The article What ‘Made in the U.S.A.’ Truly Means originally appeared on Fool.com and is written by Leo Sun.
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