Stock Idea: Stable dividend grower to capitalize on connectivity and data thematic
Two of the most prominent drivers of our ever increasing digital world are connectivity and data. More and more devices and things are getting connected, and the amount of data flowing thru those devices and things is growing exponentially. Average data usage per device is forecasted to grow at a compound annual growth rate (CAGR) of 24% thru 2026.
If you want a stable way of playing this fast growing trend, look to the physical real estate and infrastructure enabling our digital world. This brings me to my latest stock idea, American Tower Corporation (NYSE: AMT). American Tower Corporation, one of the largest global Real Estate Investment Trusts (REITs), is a leading independent owner, operator and developer of wireless and broadcast communications real estate. They make wireless communication possible in the US and around the world.
You can't get more stable than the wireless tower industry. Let's get the basics down:
A tower is a vertical structure built on a parcel of land, designed to accommodate multiple telecom carrier tenants
Tenants utilize many different technologies, including telephone, mobile data, broadcast television, machine to machine and radio
Tenants lease vertical space on the tower and portions of the land underneath for their equipment
It's a very attractive business. Wireless providers sign long-term leases that include rent escalators (fixed annual increases of about 3%), which provides visible and stable revenue stream. The towers themselves have significant operating leverage. They can take on new tenants to the existing assets or existing tenants can add new equipment (e.g., edge computing facilities) or upgrade existing equipment (e.g., 4G to 5G). This drives revenue growth while adding little incremental cost. As devices and things use more data, networks get stretched, and carriers add equipment to more towers and upgrade their equipment to handle the growing demands. This is when the cash register rings for tower providers like American Tower.
One of the big drivers of increased mobile data usage, and therefore network investment, is the 5G network upgrade currently underway. More emerging drivers include the Internet of Things, Edge computing, AR/VR and autonomous vehicle networks. All providing attractive opportunities for tower providers to incrementally improve the utilization of their existing assets.
American Tower is the market leader in the most profitable market, the U.S. American Tower generates more than half its total revenue and has about one fourth of its towers in the country. Two main forces drive stability in their earnings:
Data usage in the U.S market roughly doubles every two years, and this growth rate is expected to continue for the foreseeable future because of rising video content and the Internet of Things (IoT). To meet this demand, carriers will continue investing in their networks.
The long-term nature of American Tower's leases with its customers provides them with revenue visibility and essentially provides a floor to financial results.
This stability is reflected in the stock's performance, which has seen an annualized 15.28% growth rate over 15 years. Add in an average annual dividend growth rate greater than 20% since 2012 and you have a buy and hold dividend stock that you can comfortably add to your portfolio.
Here is why I like AMT as a key part of my dividend portfolio.
The Bottom Line
AMT is a very stable dividend grower that you can buy and forget. Lots of promising growth drivers as connectivity and data continue to proliferate, along with increased adoption of edge computing.
I have a position in American Tower and recommend it as a buy at its current price of $238.82 (as of March 26th, 2021) for investors looking for growth and dividend income (2.08% dividend yield).
As with any investment decision you make it’s important to complete your own due diligence and assess if the investment matches your risk profile. Like any individual stock there is risk. You are entirely responsible for your own investment decisions.
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