A Dividend Giant With No Competition? What Topeka Is Saying About Lamar Advertising

• Topeka Capital has upgraded Lamar Advertising Co LAMR from Hold to Buy.
• The firm believes the REIT is a compelling yield play.
• Topeka believes that Lamar will soon up its dividend from $2.75 to $3.00.

In a new report, Topeka Capital Markets analyst David Miller explains why Topeka has upgraded Lamar Advertising from Hold to Buy. Miller loves the company’s robust dividend and sees no secular threat to its business.

Flashback
According to Miller, Topeka was bullish on Lamar throughout most of 2014. “With LAMR’s national footprint growing revenues at a slight premium to GDP, and with CFO Keith Istre opportunistically re-financing LAMR’s various high-yield tranches, and with existing free cash flow being used ro pare debt, we felt LAMR easily had the financial capacity to improve its dividend from $2.25/share to $3.00/share,” he explains.

Topeka only downgraded Lamar when the firm felt that the REIT had reached a reasonable valuation.

Some things never change
At its current price and with its 4.7 percent yield, Miller now believes Lamar is once again a compelling yield play. Topeka believes the next dividend hike from $2.75 to $3.00 is “right around the corner” and that the dividend could be upped to $3.30 by the end of 2016.

Favorable business environment
In addition to the appealing yield, Miller likes the prospects for Lamar’s advertising business given the current market outlook. Lamar has the largest digital board footprint of any company (2,246 boards), and low gas prices have U.S. drivers logging more miles than they ever have. Miller also sees no competitive threat to the outdoor advertising business.

Target
A target yield of 4.5 percent on a $3.30 dividend suggests a share price of $73.33. Topeka has raised its target price for the REIT from $60 to $73.

Disclosure: the author holds no position in the stocks mentioned.