Lamar Advertising Company (LAMR) Cash Flow Statement

The dividend payout ratio based on AFFO was 80.4% in Q2 2026, leaving a retained buffer of approximately $39.6M. This coverage is consistent with the prior quarter's 0.89 ratio, indicating stable distributable cash generation. However, the retained AFFO is modest relative to the company's capital needs, suggesting limited internal funding for growth.

The capex-to-revenue ratio has been relatively stable around 5-7% over the past year, indicating a disciplined approach to maintenance and growth spending. The slight uptick in Q2 2026 may reflect increased investment in digital billboards, which typically offer higher returns. Investors should monitor whether this capex translates into improved AFFO margins in subsequent quarters.

The FFO-to-OCF ratio of 1.03 indicates that cash conversion is efficient, with minimal distortion from non-cash items. However, the variability in OCF relative to FFO across quarters (e.g., Q1 2026 OCF was $147.4M vs. FFO of $183.2M) suggests timing differences in receivables and payables. This is typical for advertising companies with short-term contracts, but investors should watch for any buildup in tenant receivables that could signal collection issues.

The company's high leverage amplifies the impact of interest rate changes on AFFO. In Q2 2026, interest expense likely consumed a substantial portion of operating income, though the exact figure is not provided. The dividend is not fully covered by internal cash flows after capex, as evidenced by the need for occasional debt issuance. This suggests that in a rising rate environment, AFFO could be pressured, potentially leading to dividend coverage below 1.0x.

The FFO-to-NI ratio of 1.57 underscores the magnitude of depreciation and amortization, which are non-cash but represent real economic costs over time. This distortion is why AFFO, which accounts for maintenance capex, is a more reliable measure of distributable cash. The gap between FFO and AFFO (approximately $42.7M in Q2 2026) approximates the maintenance capex, which is a critical input for assessing dividend sustainability.