High-Yield Lamar Advertising Stock Trading at Record Levels & Could Keep Rising
February 28, 2024
LAMR Stock Should Be on Investors’ Radar
Ever since the Federal Reserve announced last November that it was done raising interest rates for this economic cycle—and that it would start cutting interest rates in 2024—the broader stock market, particularly real estate investment trusts (REITs) like Lamar Advertising Co (NASDAQ:LAMR), have been ripping higher.
When most people think of REITs, they focus on firms that invest in real estate such as retail, office, or residential properties. But then there are specialty REITs. These companies own and manage different types of properties, such as prisons, cell towers, seniors housing, movie theaters, and casinos.
Lamar Advertising Co is a specialty REIT that operates under the radar. You may not be aware of the company, but if you live in the U.S. or Canada, you’ve likely seen their properties.
Baton Rouge, Louisiana-based Lamar Advertising is one of the biggest outdoor advertising companies in North America. It has about 363,000 ad displays across the U.S. and Canada. (Source: “Our Company,” Lamar Advertising Co, last accessed February 26, 2024.)
The company’s display formats include billboards, interstate logos, transit ads, and airport ads. It has the largest network of digital billboards in the U.S., with more than 4,600 digital displays.
Why continue using old-school advertising methods? Because they work.
Through billboards, advertisers can capture the attention of audiences 24 hours a day, seven days a week. Digital billboards, meanwhile, have taken outdoor advertising to a new level, allowing clients to rotate slides every few seconds, stream live data, or change their message in real time.
Bus and rail transit ads are “moving billboards” that expose messages to drivers, transit riders, and pedestrians. Lamar Advertising’s Transit category also includes ad displays on bus shelters, on benches, and in stations. (Source: “Transit,” Lamar Advertising Co, last accessed February 26, 2024.)
Airport ads put messages in front of hundreds of millions of travelers every year. According to one study, 42% of frequent flyers visit a brand’s web site or store after seeing its airport ad, and 90% of them are likely to shop at a brand’s brick-and-mortar location after seeing its airport ad. (Source: “Airport Advertising Spurs Action,” Lamar Advertising Co, last accessed February 26, 2024.)
2023 AFFO Growth Topped Revised Guidance
Save for 2020, which was the main year of the COVID-19 pandemic, Lamar Advertising has been reporting strong revenue growth. Its revenues went up by 7.7% in 2019, down by 10.5% in 2020, up by 13.9% in 2021, and up by a further 13.6% in 2022. (Source: “Lamar Advertising Co. Cl A,” MarketWatch, last accessed February 26, 2024.)
The company’s profit growth has also been impressive. Its net income went up by 21.9% in 2019, cratered by 34.5% in 2020, rebounded by 59.45% in 2021, and went up by 13.0% in 2022.
Lamar Advertising continued its winning ways in 2023.
For the fourth quarter of 2023, the company announced that its revenues increased by 3.8% year-over-year to $555.9 million. (Source: “Lamar Advertising Company Announces Fourth Quarter and Year Ended December 31, 2023 Operating Results,” Lamar Advertising Co, February 23, 2024.)
Its operating income climbed in the fourth quarter by 74% year-over-year to $191.7 million. Its net income rallied in the quarter by 125% year-over-year to $149.3 million, or $1.46 per share.
The company’s cash flow provided by operating activities rallied in the fourth quarter to $254.2 million, while its free cash flow (FCF) advanced 13.2% year-over-year to $180.3 million.
In the fourth quarter, the company’s all-important funds from operations (FFO) increased by 9.5% year-over-year to $213.7 million. Its adjusted FFO (AFFO) went up by 10.5% year-over-year to $215.0 million and its diluted AFFO per share rose by 9.9% year-over-year to $2.10.
In full-year 2023, Lamar Advertising Co’s net revenues went up by 3.9% to $2.11 billion.
Its operating income increased in the year by 16.8% to $97.4 million. Its net income grew by 13.2% to $496.8 million, or $4.85 per share. Its cash flow from operations went up significantly to $783.6 million, while its FCF inched up by 0.4% to $633.8 million.
In 2023, the company’s FFO climbed by 1.4% to $767.9 million, its AFFO increased by 1.7% to $762.3 million, and its diluted AFFO per share increased by 1.2% to $7.47.
Commenting on the results, Lamar Advertising Co’s CEO, Sean Reilly, said, “Revenue growth accelerated as we moved through the fourth quarter, primarily because of strength in local sales.”
He continued, “In addition, our team continued to do an outstanding job controlling expenses. The result is that we achieved $7.47 in full year AFFO per diluted share, easily beating our revised guidance range for 2023.” (Source: Ibid.)
For 2024, management expects to report diluted earnings in the range of $5.02 to $5.07 per share and diluted AFFO per share in the range of $7.67 to $7.82.
Management Hiked Quarterly Dividend to $1.30 Per Share
Thanks to the reliable growth in its earnings, FFO, and AFFO, Lamar Advertising Co has been able to provide investors with reliable, growing, high-yield dividends. From 2015 to 2019, before the pandemic, the company raised its distributions each year. (Source: “LAMR Dividend History,” Nasdaq, last accessed February 26, 2024.)
It’s no big surprise that Lamar Advertising cut its dividend in 2020. With much of the global economy shut down at the time, the demand for outdoor advertising dried up.
But the pause was short-lived. In the first quarter of 2021, Lamar Advertising Co raised its quarterly payout to $0.75 per share. In the third quarter of that year, the company raised its dividend again—to $1.00 per share. That’s the same level Lamar Advertising stock’s distribution was at before the pandemic.
The company has raised LAMR stock’s quarterly payout four times since then. In February 2024, it increased the dividend from $1.25 to $1.30 per share. This works out to a dividend yield of 4.72% (as of this writing).
As an added bonus, Lamar Advertising Co has periodically juiced its quarterly dividends with special dividends.
For instance, in December 2021, the company paid a regular dividend of $1.00 per share and a special dividend of $0.50 per share, for a total quarterly payout of $1.50 per share. In December 2022, it paid a regular cash dividend of $1.20 per share and a special dividend of $0.30 per share, for another total payout of $1.50 per share.
Lamar Advertising Stock’s Price Recently Hit Record High
At Income Investors, we generally look at stocks with dividend yields above five percent. We’re willing to give a dividend stock a little wiggle room if its underlying share price is doing well, though.
That’s because share price and yield work inversely to each other. Typically, the higher the share price, the lower the dividend.
Lamar Advertising Co’s dividend yield has been going down over the last few months, but that’s not necessarily a bad thing. LAMR stock’s dividend amount and share price have both been rising.
In fact, Lamar Advertising stock’s price hit an all-time record intraday high of $117.62 per share on February 23. It went down a little after that due to short-term profit-taking, but it’s still up by:
- 11% over the last three months
- 24% over the last six months
- 11.5% year-over-year
Chart courtesy of StockCharts.com
The Lowdown on Lamar Advertising Co
Outdoor advertising might not seem all that exciting, but Lamar Advertising makes up for it with growing dividends and significant share-price gains.
A specialty REIT with a leading position in a lucrative niche market, Lamar Advertising Co continues to report solid growth in its revenues, earnings, and AFFO. Moreover, management has provided excellent guidance for 2024.
This should help juice LAMR stock‘s quarterly distributions and possibly lead its share price to hit fresh highs in 2024.
