Outdoor advertising services provider Lamar Advertising Co. is actively pursuing plans to convert itself into a real estate investment trust (REIT) to capitalize on a seemingly more favorable tax environment. The company is currently mulling an REIT election and is optimistic about receiving a favorable ruling from the U.S. Internal Revenue Service (IRS) for the same.
Investors looking for high dividend yields have favored the REIT sector. Solid dividend payouts are arguably the biggest enticement for REIT investors as the U.S. law requires REITs to distribute 90% of their annual taxable income in the form of dividends to shareholders. Consequently, an REIT status is likely to reduce Lamar’s tax burden and boost its cash flow as well as augment shareholders’ wealth in the form of increased dividends.
Lamar is one of the largest owners and operators of outdoor advertising structures in the U.S. with a market-leading inventory of over 155,000 structures. This Baton Rouge-based company offers advertising solutions in the form of bulletins, posters, digital billboards, buses, benches, and transit shelters. In addition, Lamar has 22 locations that are exclusively dedicated to the highway logo sign business.
Lamar has expanded its localized billboard advertising businesses through a combination of organic growth and strategic acquisitions. The outdoor advertising industry is growing on a secular basis as consumers spend most of their time away from home. Fragmentation across other advertising media and technological advancements in the outdoor segment are aiding the shift to outdoor advertising. In order to tap these markets, Lamar has acquired various outdoor advertising assets to increase the number of outdoor advertising displays in existing and new markets. These real estate properties will serve a long way in its quest to achieve an REIT status.
Shares of this Zacks Rank #3 (hold) stock, which is eyeing a REIT status by Jan 2014, yielded a healthy return of 30.7% in 2013. Despite its strong price appreciation, the stock still has solid fundamentals that may further drive the share prices upward. The stock is currently trading at a forward P/E of 103.7x and has long-term earnings growth expectation of 4.0%.
Other players in the industry worth considering include WPP plc (WPPGY - Free Report) , YuMe, Inc. and Franklin Covey Co. (FC - Free Report) , each carrying a Zacks Rank #2 (Buy).