American Tower (AMT) plays a critical role in the telecom industry. The company owns more than 200,000 communications sites globally, including cell towers that enable wireless carriers to extend the reach of their networks.

Some wireless carriers operate their own towers, as well, but it’s becoming less common. Verizon, for example, is reportedly exploring a sale of thousands of U.S. towers in a deal that could raise $3 billion. The company previously unloaded more than 11,000 towers to American Tower back in 2015.

This trend allows American Tower to continue expanding in the U.S., in addition to international markets, although the mature U.S. business is growing even without adding new towers. It reported tenant billings growth of 5% for the U.S. and Canada in the second quarter. The company’s leases often include automatic rent increases, and towers can become more productive by adding additional tenants or equipment.

Profitable growth
American Tower’s second-quarter results were positive across the board, not just in terms of U.S. billings growth. Total revenue jumped 4.6%, beating analyst expectations. Tenant billings rose 6.1% overall, driven by solid U.S. results and even stronger growth overseas.

International markets not only have more room for additional towers than the saturated U.S. market, but the wireless industry is less concentrated in some countries. Since the bulk of a tower’s operating costs are fixed, more tenants on a single tower translates into dramatically improved profitability.

American Tower produced adjusted funds from operations (AFFO) of $2.79 per share in the second quarter, up 13.4% year over year and $0.21 above the average analyst estimate. Growth for the full year will be a bit slower but still impressive. The company expects property revenue to rise 1.7% in 2024, with AFFO per share set to jump by 7.4% at the midpoint of the company’s guidance range.

In addition to wireless carriers selling off tower assets over time, the explosion of mobile data usage in the U.S. and globally should drive long-term demand for American Tower’s services. Faster networks with more data throughput mean more equipment and growing revenue for the company’s towers. As wireless carriers invest in their networks, American Tower acts as a toll booth that can’t be avoided.

A solid and growing dividend
American Tower’s most recent quarterly dividend payment, which was paid earlier in July, was $1.62 per share. This works out to a forward dividend yield of about 3%.

While that’s far from the highest dividend yield available among real estate investment trusts (REITs), American Tower should be able to grow that dividend consistently as revenue and AFFO increase. The quarterly dividend has doubled since late 2018, and the most recent dividend payment represents a 3.2% bump.

American Tower stock trades for around 20 times forward AFFO. That’s not a clear-cut bargain, but it’s a reasonable price to pay, given how entrenched the company has become in the global wireless industry. While wireless carriers fiddling with capital spending budgets can cause American Tower’s revenue to ebb and flow year to year, the long-term picture looks bright.

American Tower stock is down nearly 30% from its all-time high, so now is a great time to add this growing dividend payer to your portfolio.

— Timothy Green

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Source: The Motley Fool