This High-Yield Dividend Stock's $23 Billion Secret Weapon


If you’re looking for a high-yield dividend stock, one of the best places to find one is in the real estate sector, specifically among the real estate investment trusts (REITs).

REITs tend to pay generous dividend yields because they are required by law to pay out at least 90% of their profits as dividends.

Right now looks like a great time for dividend investors to capitalize on the opportunity in REITs because share prices in the sector have fallen as interest rates have surged. However, interest rates should start falling later this year, according to the Federal Reserve’s forecast, which should encourage investors to move back into dividend stocks like REITs, lifting their share prices.

Investors have a lot of choices in the REIT sector — office, residential, industrial, retail, and healthcare, each of which offers different advantages. A high-yielding REIT stock that is different from most of the sector is Outfront Media (OUT -2.33%), one of the biggest owners of outdoor advertising properties, including digital and traditional billboards.

The stock currently offers a dividend yield of 7.6% and has the stock surged in recent months, nearly doubling from its low in October.

Outfront will also benefit from a secret weapon in its industry, but first, let’s look at why the stock is a good bet to keep climbing from here.

A woman looking at images on a transparent screen.

Image source: Getty Images.

A cyclical tailwind

Like other REITs, Outfront has benefited from expectations of falling interest rates since October, when the stock market began rallying.

In addition to the benefit from falling interest rates, Outfront is also getting a tailwind from a rebound in the advertising market, which is highly cyclical. Advertisers had scaled back on ad spending in 2022 and 2023 in preparation for a recession that never arrived, and now ad demand is picking back up as consumer spending remains strong.

Outfront’s fourth-quarter growth was modest, with revenue up just 1.3%, in part because of headwinds in its transit segment. However, management pointed to stronger demand in its billboard segment, which is leading to higher rates and should drive expanding margins as well.

For 2024, the company expects adjusted funds from operations to increase by high single digits from the $271 million it reported in 2023.

However, the real reason the stock could soar is its emerging digital business as the outdoor advertising industry converts to digital billboards.

Outfront’s $23 billion opportunity

Outfront’s digital revenue rose 8.9% in the quarter to $179.5 million, making up 35.8% of its total revenue, but the opportunity in digital out-of-the-home (DOOH) advertising is much larger and growing swiftly.

According to one estimate, the DOOH market was worth $23.2 billion in 2022 and is expected to grow by 11.2% annually through 2029 to reach a market size of $48.9 billion.

Outfront looks uniquely positioned to take advantage of that opportunity, especially as features like programmatic advertising add value to its DOOH properties and raise advertising rates.

On Tuesday, for example, the company announced a significant expansion of programmatic advertising in New York City’s transit system. Outfront has digitally programmable signs in nearly every subway station, 3,800 in total, and the platform allows advertisers to run ads and change them according to variables like time of day and location. Outfront has also partnered with companies including The Trade Desk, Freshpet, and the NBA.

If Outfront can capitalize on the double-digit growth in the DOOH market, while benefiting from the fall in interest rates and the rebound in the broader advertising market, the stock looks set to be a winner over the coming years. Investors who buy the stock today can also take advantage of its appealing 7.6% dividend yield.

Jeremy Bowman has positions in The Trade Desk. The Motley Fool has positions in and recommends Freshpet and The Trade Desk. The Motley Fool recommends Outfront Media. The Motley Fool has a disclosure policy.



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