Readers hoping to buy Lamar Advertising Company (REIT) (NASDAQ:LAMR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 13th of September to receive the dividend, which will be paid on the 30th of September.
Lamar Advertising Company (REIT)'s upcoming dividend is US$0.96 a share, following on from the last 12 months, when the company distributed a total of US$3.84 per share to shareholders. Based on the last year's worth of payments, Lamar Advertising Company (REIT) has a trailing yield of 5.0% on the current stock price of $76.29. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 79% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be worried about the risk of a drop in earnings. That said, REITs are often required by law to distribute all of their earnings, and it's not unusual to see a REIT with a payout ratio around 100%. We wouldn't read too much into this. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out more than three-quarters (94%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Lamar Advertising Company (REIT)'s earnings have been skyrocketing, up 54% per annum for the past five years. Earnings per share are growing at a rapid rate, yet the company is paying out more than three-quarters of its earnings.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Lamar Advertising Company (REIT) has delivered 3.0% dividend growth per year on average over the past 5 years. Earnings per share have been growing much quicker than dividends, potentially because Lamar Advertising Company (REIT) is keeping back more of its profits to grow the business.
To Sum It Up
Is Lamar Advertising Company (REIT) worth buying for its dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that Lamar Advertising Company (REIT) is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. In summary, while it has some positive characteristics, we're not inclined to race out and buy Lamar Advertising Company (REIT) today.
Ever wonder what the future holds for Lamar Advertising Company (REIT)? See what the six analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.