Billboards come in many varieties, shapes and sizes. Outdoor advertising catches our eye as we walk, drive, and wait for a green light. Fellow Fool Mark Lin recently pointed out that this is one of the only traditional media channels that is actually growing.

Now this growth can literally pay dividends for REIT investors looking for competitive yields.

There are three big players in the outdoor advertising industry based upon revenues: Lamar Advertising (LAMR -0.03%), CBS Outdoor (NYSE: CBSO) -- a recent spin-out of CBS -- and Clear Channel Outdoor (CCO 2.38%).

Are billboards real estate?
That was a central question that the IRS had to answer in order to confer REIT status to companies that derive revenues from renting out: billboards, digital, and transit displays. At least 75% of this revenue would have to come from assets which qualify as real estate.

The IRS recently issued a positive private letter ruling, or PLR for both Lamar Advertising and CBS Outdoor this past April, 2014 and both companies chose to elect REIT status.

Why REIT investors should take a long look at Lamar
1. Clear Channel Outdoor is not a REIT and does not pay out a dividend. Additionally, investors should be aware that this competitor is 89% owned by parent CC Media. Even more of a concern is that Clear Channel Outdoor and has extended a $1 billion  revolving line of credit to its parent.

2. CBS Outdoor is a REIT, but parent CBS still owns 81% of the shares. The REIT board of trustees serves at the pleasure of its sponsor. This new REIT only has a four month operating history, and the stock has recently sold off appreciably on very high volume.

3. Lamar Advertising has been an operating business since 1902. It appears to be successfully executing a sound business model. It has operated its business during 2013 in such a way as to allow a REIT election as of Jan. 1, 2014. Based upon mid-range AFFO estimates for 2014, Lamar intends to pay out an annual dividend of $2.50 per share, yielding 4.8% based on share prices as of July 8, 2014.

It appears to me that given the other choices REIT investors have in more seasoned sectors, the only company currently deserving serious consideration is Lamar Advertising.

Lamar Advertising investor overview

One of the key takeaways from this June 2014 Investor Presentation slide is that 78% of revenue is generated from local tenants. The 825 local account executives that service this diversified tenant base appears to create a bit of a competitive moat for Lamar.

Blue chip national tenants are likely to have many more options on where to spend their media budget, once an initial 30-day to one-year contract expires with any outdoor advertising company.

Lamar REIT conversion appears to be a seamless transition

Outdoor advertising has proven to be sensitive to recessions
The biggest concern for investors looking at Lamar as a long-term investment would have to be that this sector is sensitive to economic downturns. Earning growth not only can slow, but in the recent past it has even decreased.

This slide shows how the Great Recession significantly affected the Lamar bottom line:

Adjusting capital expenditures to help level out revenues
The tool that Lamar feels can help keep AFFO from falling is flexibility in the timing of some capital expenditures, or capex. In 2014 about 55% of Lamar capex was maintenance, and 45% attributed to growth.

Digital display maintenance is probably not optional, however, when it comes to more traditional billboards and displays Lamar has shown that it can cut way back during tough economic times.

In fiscal year, or FY, 2008 Lamar spent $198 million on capex. During FY 2009 just $38.8 million, and FY 2010 only a bit more, $43.5 million. However, it should be noted that capex has been steady, around $106 million for the past three years, much lower than pre-Great Recession levels of about $210 million.

This is something investors should monitor carefully.

Investor takeaway
It remains to be seen if Lamar Advertising will be able to grow revenues and manage expenses in order to steadily grow adjusted funds from operations, or AFFO as a REIT. Growth in AFFO is what fuels increases in dividends to shareholders.

The current projected dividend of 4.8% is certainly competitive, but given all of risk factors associated with outdoor advertising, investors may want to choose to wait for a more attractive entry point. There are many single-tenant triple-net REITs with a proven business model that currently pay out similar or higher dividend yields.