Billboards Are Cash Machines - And Lamar Advertising Is There To Reap the Profits
Billboards come in many varieties, shapes and sizes. Outdoor advertising catches our eye as we walk, drive, and wait for a green light. Fellow Fool Mark Lin recently pointed out that this is one of the only traditional media channels that is actually growing.
Now this growth can literally pay dividends for REIT investors looking for competitive yields.
There are three big players in the outdoor advertising industry based upon revenues: Lamar Advertising , CBS Outdoor -- a recent spin-out of CBS -- and Clear Channel Outdoor .
2. CBS Outdoor is a REIT, but parent CBS still owns 81% of the shares. The REIT board of trustees serves at the pleasure of its sponsor. This new REIT only has a four month operating history, and the stock has recently sold off appreciably on very high volume.
3. Lamar Advertising has been an operating business since 1902. It appears to be successfully executing a sound business model. It has operated its business during 2013 in such a way as to allow a REIT election as of Jan. 1, 2014. Based upon mid-range AFFO estimates for 2014, Lamar intends to pay out an annual dividend of $2.50 per share, yielding 4.8% based on share prices as of July 8, 2014.
It appears to me that given the other choices REIT investors have in more seasoned sectors, the only company currently deserving serious consideration is Lamar Advertising.
Lamar Advertising investor overview
One of the key takeaways from this June 2014 Investor Presentation slide is that 78% of revenue is generated from local tenants. The 825 local account executives that service this diversified tenant base appears to create a bit of a competitive moat for Lamar.
Blue chip national tenants are likely to have many more options on where to spend their media budget, once an initial 30-day to one-year contract expires with any outdoor advertising company.
Lamar REIT conversion appears to be a seamless transition
Outdoor advertising has proven to be sensitive to recessions
The biggest concern for investors looking at Lamar as a long-term investment would have to be that this sector is sensitive to economic downturns. Earning growth not only can slow, but in the recent past it has even decreased.
This slide shows how the Great Recession significantly affected the Lamar bottom line: