Even if you’re not familiar with Lamar Advertising (NASDAQ: LMAR) as a real estate investment trust (REIT), it’s likely you recognize the name from the over 155,000 billboards the company owns across the country. The company has been around since 1902 and is now the largest outdoor advertising company in the United States.
While the company has experienced a lot of changes in advertising and consumer behavior over its nearly 120 years, we’re living in a time where the rate of change increases every day, and that can be hard for companies to keep up with. So, where will Lamar Advertising be in five years?
The future of billboard advertising
Billboards are one of the oldest forms of advertising, and it’s unlikely they’ll be going anywhere anytime in the foreseeable future. While many traditional forms of advertising, such as newspaper, television, and radio ads are becoming more obsolete by the day, billboards remain an effective way for businesses of all sizes to reach consumers.
This isn’t to say that the billboard advertising industry isn’t evolving, though. Digital billboards are providing a way for companies to quickly update their messaging and even advertise in the more expensive high-traffic locations by sharing the space with other companies. These digital billboards aren’t only good for the advertisers, but also good for the companies that own them because they generate more revenue than traditional billboards.
According to Lamar’s most recent investor presentation, the company owns approximately 3,600 digital billboards, which is the largest network of digital billboards in the United States. This is a strong position to be in, because companies can’t simply put up new billboards wherever they want. Strict permitting regulations create high barriers for entry, and many areas are already capped at the number of billboard permits they will issue.
Lamar Advertising’s financial strength
Lamar Advertising saw consistent growth in revenue and AFFO before the COVID-19 pandemic, but it took a big revenue hit in 2020 as billboard advertising spending was cut due to businesses being forced to close and the many shelter-in-place orders throughout the country significantly reduced the amount of daily traffic driving by the company’s billboards.
However, the recovery is coming along nicely for Lamar. While revenue was still down 8.8% in the first quarter of 2021 versus the same period in 2020, the company’s AFFO increased by nearly 3%. Revenue should continue to recover throughout the year as businesses continue reopening and more people return to work.
Lamar pays a modest dividend, with their current yield at 3.14%. However, this dividend is very well covered with an FFO payout ratio of only 54.6%, which means the company retains enough cash to continue its growth. This is one reason the REIT’s stock price has increased over 240% over the past 10 years.
The future of Lamar Advertising
With the growing demand for digital billboards and the company’s well established market share, Lamar Advertising should see consistent revenue growth moving forward. The REIT is also in a strong enough financial position to allow for growth through acquisitions and the development of more digital billboards.
While Lamar isn’t likely to see major gains in its share price or dividends, it should be a fairly safe REIT to purchase for a long-term investment that will provide some modest dividends along the way.