Cell Tower = Dividend Power

This article was produced in collaboration with Cappuccino Finance.

Data usage on smartphones has exploded over the past few years, putting ever-increasing demands on wireless and communications infrastructure.

Total US mobile data traffic is expected to grow at a rate of 23% per year. 2022-2027 CAGR, and growth in both the number of wireless devices and data usage per device will be the main drivers of this significant growth.

There are several ways to take advantage of this trend. Investing in telecommunications companies such as Verizon (VZ) or AT&T (T.) is recommended. Given their industry dominance and strong cash-generating capabilities, Verizon and AT&T will be good long-term investments.

Investments in device makers such as Apple (AAPL) and Microsoft (MSFTMore) is another possible option To embark on the growth of wireless devices.

In the real estate investment space, there is Celltower REIT. In my opinion, these are one of the best ways to benefit from the massive growth in telecoms. Provide the necessary real estate to the telecommunications company and collect the rent.

The three companies in this article (American Tower, Crown Castle Inc., and SBA Communications) are leaders in their space, offering an attractive combination of growth and profitability.

American Tower (AMT)

American Tower is a large owned, operated and developed global REIT. multi-tenant communication real estate. Their primary business is leasing real estate to wireless service providers, radio and television broadcasters, wireless data providers, and government agencies.

American Tower has properties worldwide and over 200,000 real estate assets.

American Tower does an excellent job of managing its balance sheet and allocating capital efficiently. It has a net leverage ratio of 5.5x and an average debt maturity of 5.9 years.

American Tower has sufficient liquidity ($7 billion) to support growth. 77% of their debt is fixed rate.

American Tower has increased its dividend significantly, with growth well above the sector median. American Tower’s dividend growth over the past five years was 17.47% (his CAGR over five years), with the sector median of 1.66%.

Considering AFFO’s payout ratio is 59.98% and FAD’s payout ratio is 51.93%, we think dividend payments from American Tower are safe at this point. We hope that the Company will continue to increase dividends in the future, based on its strong performance.

Looking at the rating metrics, American Tower is currently underrated. The current P/AFFO ratio of 22.16x and P/FFO ratio of 21.65x are approximately 10% lower than the five-year average. iREIT’s ratings tracker shows that American Tower’s margin of safety is currently at 10% (plus a buy).

Crown Castle Co., Ltd. (CCIMore)

Crown Castle is a REIT that owns, operates and leases cell towers, small cells and fiber solutions across the United States. We have over 40,000 cell towers and over 80,000 route miles of fiber. Crown Castle has experienced strong growth over the last few years and we expect it to continue to expand.

Brad and Nicholas recently covered Crown Castle. This article – These are the sectors and companies that the iREIT team is focusing on.

Crown Castle has a high quality, low risk balance sheet. It’s also improved over time. If you look at their debt maturity schedules, they are very well-diversified over the next 10+ years, so their debt maturities are very well managed.

The weighted average interest rate is 3.3% and the weighted average debt maturity is 8.5 years. 84% of their debt is fixed rate and 93% of their debt is unsecured.

As the business has grown, Crown Castle has increased its dividend accordingly. Crown Castle’s AFFO growth has been 8.74% per annum (his 5-year CAGR) over the past five years and its dividend per share growth has been 9% per annum (CAGR) since 2016. .

We expect that the dividend will continue to increase, given the strong performance.

Full-year 2022 Crown Castle organic tower revenue increased 6.5%, leading the industry. The company’s customers are upgrading existing tower sites with additional spectrum and new equipment to support his new 5G network, and the work has contributed significantly to Crown Castle’s revenue growth. In addition, Crown Castle deployed his 5,000 small cells to support initial densification of the network across the United States.

Management expects the operating momentum to continue through 2023. CCI is a buy.

SBA communication (SBAC)

SBA Communications is a leading owner and operator of wireless communications infrastructure, including tower structures, rooftops and antennas. Top domestic customers include T-Mobile, AT&T and Verizon, while top international customers include America Movil, Telefonica and TIM.

SBA Communications’ business strategy drives the company’s growth and profitability. They are focused on maximizing tower capacity, effectively leveraging scale and management experience, and conducting disciplined acquisitions.

This approach has certainly been successful, as evidenced by 12.02% annual AFFO growth over the past five years. Revenue has consistently increased in domestic and international markets over the past few years.

Along with strong business growth, dividend growth has also been impressive. Dividend growth over the last 3 years is 56.57% (his CAGR over 3 years). Looking at their portfolio and earnings growth trajectory, we expect dividends to continue to increase, though not reach the 50% annual level.

Dividend payouts are safe at this point, with a cash payout ratio of 30.0% and an AFFO payout ratio of 23.81%.

SBA Communications has a strong balance sheet to support long-term growth. The leverage ratio is 6.8x and the net cash interest coverage ratio is 5.3x. The net secured debt leverage ratio is 5.1x.

With this strong balance sheet and solid operations, we expect SBA to continue to successfully execute its growth plans. SBAI is HOLD (barely).

dangerous…

As many of us know and expect, a recession could hit the US and the rest of the world later this year. There’s no consensus on size and length, but nearly everyone is pessimistically predicting 2023.

On top of that, technology giants like Amazon (AMZN) and Google (goog) (Google) has announced layoffs of its employees, adding to the pressure on the market.

If a recession hits, customers may choose to cut back on their mobile phone spending, and reduced usage could adversely affect the performance of the Cell Tower REIT.

One of the key growth drivers for cell tower REITs is the adoption of 5G networks. The global market size of his 5G services was valued at $60 billion in 2022. Expert It is expected to grow at 59.4% annually.

However, this will also depend on the global economy, as network growth will depend on a number of factors, including government investment, business investment, and people’s data usage habits, and there is much to say about how fast growth will occur. There is uncertainty. Investors should pay close attention to the market and industry environment.

Conclusion

People are using more and more data on their smartphones, and total data usage is growing rapidly. In addition, more and more appliances and devices are connected to wireless networks, and this trend will continue to grow.

Investing in cell tower REITs, which own and operate the infrastructure of telecommunications companies, is one great way to take advantage of these trends.

The three companies featured in this article are leaders in their space, have strong balance sheets, and are doing an excellent job of executing their operating plans. They are in a great position to capitalize on this trend.

Investors must check!

Author’s note: Brad Thomas is a Wall Street writer. That goes for his grammar as well, so please excuse any typos you may have found. It is created and distributed solely for the purpose of assisting research while providing a forum for second level thinking.