American Tower Corporation Sends Out A Strong Signal

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American Tower Corporation (AMT) — a real estate investment trust — has an extraordinary record for dividend growth and wealth creation. Like all equity REITs, its portfolio comprises a wide swath of improved property. That said, American Tower’s portfolio is unlike the super majority of REIT portfolios. 

Forget office buildings, warehouses, malls, storage units, retail outlets, hotels, apartments, rental houses. Its portfolio is composed of cellphone towers, and a lot of them. American Tower is one of the largest cellphone tower owners in the world. It reported owning 185,641 of these towers at the end of fiscal-year 2020.

The large cellphone carriers are American Tower’s primary tenants. You know the names: AT&T (T), Verizon (VZ), and T-Mobile (TMUS). Lease payments from these three behemoths accounted for 55% of American Tower’s $8 billion of revenue in 2020. That still leaves another 45%. Lease payments from radio and television broadcasters, government agencies, and municipalities account for the remainder. 

Most of the business is generated here. Towers in the United States and Canada generated 56% of the annual revenue last year. That said, more of the business is being generated over there. The rest of the world offers ample growth opportunities, particularly Latin America and Africa.

The 4G penetration rate is only 50% among the countries south of our border. It is a barren 10% in Africa. American Tower is positioning itself to supply the requisite infrastructure. It acquired Eaton Holdings for $1.85 billion in 2019; this brings 5,500 sites across five African markets.

It also bought Telxius Tower — the tower business of Spanish telecom Telefónica (TEF); Telxius owns 30,722 communications sites in Germany, Spain, Brazil, Chile, Peru, and Argentina. The Telxius should be a meaningful growth driver for the decade ahead.

5G is the broadband cellular technology of tomorrow. Tomorrow fast approaches. The 5G infrastructure market is expected to $44.9 billion in 2025, up from $12 billion in 2020. American Tower is an enviable, long-term growth story in the REIT realm. Yes, the dividend yield at 1.9% appears low — but the dividend grows at a 15%-to-20% clip annually.

I am more bullish than most analysts. I have a $320 price target For American Tower shares based on the 30 times FFO (funds from operations) multiple applied to my projected FFO of $10.65 for 2022. I would offer the idea to buy up to $295.

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