EPR Properties (NYSE:EPR) is off to a nice start in 2022, up about 13% year-to-date (YTD). Alas, competition is fierce this year, and that’s only enough to secure fourth place up to this point in the InvestorPlace.com Best Stocks for 2022 contest. While the broader market is down for the year, Joanna Makris’ Arianne Phosphate (OTCMKTS:DRRSF) is up a stunning 52%. Following her selection are Bob Ciura’s AbbVie (NASDAQ:ABBV) and Ben Reynolds’ Bristol-Myers Squib (NYSE:BMY), with YTD gains of 25% and 21%, respectively.
However, any stock capable of rising by more than 50% in a single quarter is one that can just as easily fall by a similar amount. And like most stocks this year, EPR got off to a rough start. But the firm quickly turned it around and, at time of writing, EPR stock is sitting close to its highs for the year.
So, EPR Properties is still very much in the race — and here’s why.
Playing the Post-Pandemic Recovery
Consumers bought a lot of stuff during the first two years of the novel coronavirus pandemic. Stuck at home with limited options for things to do or places to go, we entertained ourselves with box after box from Amazon (NASDAQ:AMZN) and with a lot of Netflix (NASDAQ:NFLX) binging.
Well, I don’t know about you, but I have enough “stuff” now. I bought enough during the pandemic to last me for a while. Now, I’m a lot more interested in having experiences again, and that’s where EPR Properties comes into play. EPR is a specialty real estate investment trust (REIT) dedicated to “experiential” properties. Its heaviest allocation is to movie theaters, but it owns a diverse mix of properties that includes everything from Top Golf driving ranges to ski resorts and more.
With that in mind, there is pent-up demand for experiences both among Americans and from foreign tourists. So, EPR should enjoy very strong headwinds as its tenants return to financial health. And this brings me to EPR’s dividend.
REITs are, of course, required to pay out 90% of their net income in the form of dividends in order to maintain their tax status. But during the first months of the pandemic, EPR say its rents collapse as many of its tenants were forced to shut their doors and lacked the means to pay. In turn, EPR slashed its dividend to zero in 2020 to conserve cash.
But as America learned to live with Covid-19, EPR’s tenants resumed paying their rent. In fact, EPR collected 97% of its contractual rent in the fourth quarter of last year. Thus, it’s safe to assume that if EPR’s tenants have made it this far, they’re in the clear.
Bottom Line on EPR Stock
EPR Properties reinstated its dividend at 25 cents per month in July of last year and raised it to just under 28 cents last month. That’s still below the pre-pandemic level of $0.3825 per month, of course, but it amounts to a 6% dividend yield at current prices. And as EPR continues to repair its balance sheet after a very difficult two year stretch, I expect the dividend to meet and even surpass those pre-pandemic levels in short order.
So, will EPR Properties make you wealthy? Probably not. This isn’t some new-fangled tech company poised to change the world. But it is a solid value stock with a high and rising dividend poised to crush the market as the world returns to normal. And that makes it a strong competitor in the InvestorPlace.com Best Stocks for 2022 contest.
Charles Lewis Sizemore, CFA is the Chief Investment Officer of Sizemore Capital Management LLC, a registered investment advisor based in Dallas, Texas.