Outfront Media: Specialty REIT with a High Dividend Yield of 6.5%
Earn a Steady, High Dividend from This Advertising Giant
One way to find dividend stocks with a high yield is by looking for those that have fallen in price but continue pay a dividend. Such stocks can be bought at a lower price, which lowers the initial upfront risk. This also results in a higher dividend yield since the dividend per share would be calculated at a lower price.
I’ve found one name that this would apply to: Outfront Media Inc (NYSE:OUT). Since 2014, OUT stock stock is down 30% and currently offering a dividend yield of 6.46%. But that said, Outfront Media is still worth a look. Let me explain why.
What Does Outfront Media Do?
Outfront Media is a specialty real estate investment trust (REIT) which has operates in the U.S. and Canada and is the largest in this market segment. The company provides advertising space for companies on digital, mobile, and physical billboards. Their ad spaces are located in the likes of transit stations, university and college campus, and sporting events and alongside heavy-traveled highways. Major ad locations include Sunset Boulevard in California and Times Square in New York City.
Any sector you could think of most likely has one business in a partnership with Outfront Media, with Apple Inc. (NYSE:AAPL), the New York Metropolitan Transportation Authority, and the Indonesian Ministry of Tourism being just a few examples. (Source: “OUT Investor Presentation,” Outfront Media Inc., May 2017.)
Outfront Media has strong cash flow because once an asset is owned, no more money needs to be invested in it; all the capital is put up front when the asset is purchased. What’s more, some of the deals in place hold the advertiser responsible for any capital expenditures, including monthly rent.
Margins from the entire business are approximately 29%, with the intent to increase them. The strategy is to invest strategically by purchasing assets in high-traffic areas, transit centers, popular retail districts, and other iconic locations. Due to the demand for companies to advertise in these areas, the market may dictate a higher price for the assets. This means that the capital used to purchase the assets would be recouped as a faster pace. (Source: “Form 10-K,” Outfront Media Inc, February 2017.)
Outfront Media is currently investing more in location-based mobile advertising for local partners. The advertiser has the ability to track how successful the campaign is thanks to analytics. This is a growing part of the industry and generates larger compared to other areas of operation.
Get Paid to Wait
Outfront has always paid a dividend because it receives tax breaks so long as it pays at least 90% of its cash flow to investors. This ensures that the dividend continues to be paid out.
This also means that the company must raise the dividend when the cash flow increases to make sure at least 90% is paid out at all times. The most recent hike saw the dividend rise by six percent. Outfront’s growth strategy supports further increases and a higher stock price will come as more investors want a part of the company.
The company paid out a special dividend of $4.56 per share in 2014. And this won’t necessarily be the last one either, given the expansion of the margins. In the meantime, a 6.46% dividend yield can be earned.
Final Thoughts About Outfront Media
At times, the best investments are stocks that are out of favor. The first reason is that when a lower-priced stock is purchased, there is a higher chance of generating a greater return. The second is that it means investors that are looking to purchase a position are doing so based on logic.
The great thing about Outfront Media is that there is growth to look forward to based on the different methods of advertising. Some parts of the business are steady income sources, which helps pay the growing dividend. So if these trends continue, the average yield would increase based on the purchase price. When factoring in stock price appreciation, the total return should be reflected positively in your bottom line.