3 reasons to buy shares of EPR Properties like there is no tomorrow

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If you like dividend stocks and can handle a little risk in your portfolio; Characteristics of EPR (NYSE: EPR ) Now is the stock you want to jump into. If you wait until tomorrow, you may miss today’s opportunity. While not for the faint of heart, the 7.7% dividend here is perhaps less risky than it sounds. Here are three reasons to give EPR Properties a chance as you work to transform your business.

The big story around EPR properties goes back to the early days of the coronavirus pandemic, when non-essential businesses were shut down. This Real estate investment trust (REITs) have properties that bring people together in groups socially (think amusement parks), so most tenants are locked out during that period. To ensure that it has enough liquidity to survive and, at the same time, to help its tenants survive, EPR Properties has suspended its dividend for a year.

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It was the right decision for the business, even if it was hard for investors to swallow. If so, it would be understandable. Conservative dividend investors I didn’t want to touch this stock with a 10 foot pole. But the dividend returned in the second half of 2021 and has now tripled. While the monthly dividend payout is still below pre-pandemic levels, EPR Properties has proven to be back to reward investors for its growing income stream. If you can handle a little risk in your portfolio, that fact alone makes it worth taking a closer look.

EPR Properties’ adjusted funds to operations (FFO) ratio was a strong 66% in the third quarter of 2024. That’s an entirely reasonable figure in the REIT sector. It suggests there is plenty of room for trouble before the division is in danger of being cut.

That said, EPR Properties is still in business. There is some potential for more bad news. Specifically, Q3 2024 adjusted FFO came in at $1.29 per share, down from $1.47 last year. In the first nine months of 2024, adjusted FFO was $3.61, compared to $4.07 in the first nine months of 2023. So the trend seems to be moving in a positive direction.

EPR Dividend by Share (Quarter) chart — EPR Dividend per Share (Quarter) Data in YCharts

Combine that fact with the payout ratio, and EPR Properties’ dividend may not be as risky as some investors fear.

EPR Properties’ portfolio is a “tale of two cities”. Approximately 64% of the portfolio improved from pre-pandemic performance. The rental coverage on this part of the portfolio increased from 2.0x to 2.6x in 2019. That is very good news. But the remaining 36% of the portfolio, all movie theaters, has a rental coverage of 1.5x compared to 1.7x before the pandemic. This is not good news.

That said, management is aware of the problem and is specifically looking to reduce the REIT’s exposure to movie theaters. It owns some very high-performing theaters, but this is not an endeavor that can be rushed. It requires some fines, which is complicated because it can take some time to complete the sale of properties. On the other hand, buying new properties is a time-consuming process.

The important thing is that EPR Properties sees the problem and plans to do something about it. If you can handle a little uncertainty when working through the placement process, which can take years to complete, the high yield on offer can be very attractive.

The properties of EPR can be explained by the time arbitrage game. There is risk here in the short term due to the changes being made to the portfolio and the reliance on the still weak theater property. Risk-averse investors and those with a short-term mindset may want to sidestep this.

But if you don’t mind taking a detour and reaping the rewards along the way, you might find this a very attractive opportunity. That’s because the dividend is back and growing, the underlying performance of the business is strong, and management has a concrete plan in place to improve long-term results. If you wait too long, however, this opportunity may pass you by.

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Reuben Greg Brewer It has no place in the said shares. The Motley Fool recommends EPR Properties. The Motley Fool has Disclosure Policy.

3 reasons to buy shares of EPR Properties like there is no tomorrow Originally published by The Motley Fool.