High dividends can be great, but any experienced income investor knows that a dividend is only as strong as the company paying it. And while dividend income is nice, when you combine it with stability and long-term growth potential, a stock can produce life-changing wealth over time.
That's exactly why investors should take a closer look at EPR Properties (EPR 1.41%), a real estate investment trust specializing in experiential properties. EPR has a 6.3% dividend yield that is well-covered by the company's profits and makes monthly dividend payments. The company also has a massive growth opportunity that could create tons of value for investors for years to come.
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EPR Properties in a nutshell
EPR Properties is a real estate investment trust (REIT) that focuses on experiential real estate. Theaters, waterparks, ski resorts, and golf attractions are some of the properties EPR owns and leases to their operators.
At the end of 2021, EPR owned a total of 353 properties, 279 of which are experiential in nature. The rest are educational properties (mostly early childhood centers), which the company aims to sell over time. 96% of the portfolio is occupied, and the average lease term is 14 years with annual rent increases built-in.
Movie theaters are the largest property type in the portfolio (for now), with AMC Entertainment (AMC 0.88%) EPR's largest tenant. Other major tenants include Topgolf, Vail Resorts (MTN 1.30%), Six Flags (SIX 0.63%), and Margaritaville.
Not surprisingly, EPR's tenants had a tough time during the shutdowns of the early COVID-19 pandemic. The company's rent collection had dropped to as little as 15% of contractual rent at one point, and there were serious questions about the viability of some of its tenants, particularly the theater operators. However, the resilience of EPR's business shows just how much demand for experiences exists in the U.S. By the fourth quarter of 2021, rent collection had increased to 97%, and EPR was so confident in its future cash flow that it gave shareholders a 10% dividend increase just months after reinstating the monthly payments.
We could see rapid growth for years
A couple of years ago, EPR pumped the brakes on growth in response to the pandemic, but management has recently said it plans to step on the gas once again. The company wants to diversify away from movie theaters, which make up 45% of the company's contractual rent.
EPR's management has given a list of target property types, including several that are currently part of the portfolio, as well as others that it aims to build exposure to, such as cultural attractions, live concert venues, and gaming properties. In all, EPR sees a $100 billion addressable market of properties it could target.
EPR certainly has the financial flexibility to pursue attractive opportunities as they arise. The company has nearly $290 million in cash as well as an untouched $1 billion credit line -- a ton of liquidity for a REIT with an entire market cap of less than $4 billion.
Dividends and growth are a winning combination for long-term investors
EPR has an excellent track record of delivering great total returns for investors. Since going public in 1997, EPR has delivered a 1,400% total return for investors, more than double that of the S&P 500. With a well-covered dividend that should grow in the years ahead and plenty of opportunities to create value through growing the portfolio, EPR could be a high-yield winner for patient long-term investors.
