This Stock Has a 6.5% Dividend Yield and Tremendous Upside Potential

EPR Properties (NYSE: EPR) is a real estate investment trust, or REIT, that specializes in experiential properties. It owns movie theater properties, waterparks, ski resorts, eat-and-play properties, and more.

Thanks to solid results in its business, as well as the somewhat lower interest rate environment, EPR recently reached a new 52-week high. However, the fact remains that conditions are not yet favorable for growth -- the keyword being "yet." This company has a massive, long-tailed opportunity for patient investors, and an excellent dividend yield for those willing to buy and hold.

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EPR Properties in a nutshell

As of the end of 2024, EPR Properties owned 346 locations in the U.S. and Canada. Movie theaters make up 37% of the rental income, accounting for the largest share, and are also the largest ongoing risk factor since the future of the movie industry isn't exactly certain. However, EPR is actively seeking to reduce this exposure, and it has done a great job of it so far. Its next largest property type is eat-and-play properties, which account for another 24%. TopGolf is one of its largest tenants.

Recent results have been strong. EPR's revenue increased by 3% year over year in the fourth quarter despite little growth in the investment portfolio. (More on that in a bit.) Adjusted funds from operations (FFO), the real estate equivalent of earnings, were 5% higher than a year ago, and EPR increased its monthly dividend rate by 3.5%.

Treading water, for now

As mentioned, EPR's properties have been performing rather well for the most part, and revenue is rising. However, while the company has typically grown rapidly through acquisitions and developments, it has sharply pumped the brakes on growth in recent years.

At first, this was due to the pandemic-era uncertainty. But in the years since the pandemic era, rising interest rates and pressure on EPR's stock price has made the cost of capital unattractive. In other words, it doesn't make good financial sense for EPR to take on debt or sell more shares to raise growth capital right now.

EPR is still deploying some capital, spending about $264 million on investments in 2024, but this mainly came from the company's excess cash flow, proceeds from selling a few movie theater properties, and cash on hand. And it represents a slow year for the company. For context, EPR spent $572 and $795 million in 2018 and 2019, respectively. Plus, EPR is guiding for $200 million to $300 million for 2025, so it's expecting another slow year for growth.

However, once the cost of capital improves, there is no shortage of opportunities. EPR sees tons of potential in growing the eat-and-play, ski resort, and attractions portions of its portfolio, as well as seeking opportunities in gaming, cultural attractions, live entertainment venues, and more. In all, EPR sees a market opportunity of more than $100 billion in potential acquisition targets. Once market conditions improve, there could be a great environment for growth.

A solid long-term opportunity at the current price

Along with its recent earnings report, EPR gave its initial 2025 guidance. It calls for adjusted FFO growth of 3.5% to $5.04 per share at the midpoint of the range. If you aren't familiar, FFO is a better metric for real estate earnings than net income.

That means that not only is EPR making more than enough money to cover its $3.42 per share in annual dividend payments, but even after the recent rise in the stock price, EPR trades for about 10.3 times forward earnings. With a cheap valuation, a solid and safe dividend yield, and a massive opportunity, EPR looks like a fantastic opportunity for patient long-term investors right now.

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Matt Frankel has positions in EPR Properties. The Motley Fool recommends EPR Properties and Topgolf Callaway Brands. The Motley Fool has a disclosure policy.