This Dominant REIT is a Buy

There’re all kinds of real estate. Investors who want a stake in this industry don’t have to necessarily choose between, say, warehouses or apartments, condos or commercial buildings. Some are just big antennas.

Indeed, one of the most successful real estate investment trusts (REITs) of all, American Tower (AMT), is the largest owner of cellular towers in the world.

As a REIT, American Tower must return most of its taxable income to shareholders as dividends, and it’s done so spectacularly, building a record of paybacks that includes 44 straight quarters of dividend increases.

In fact, since paying $0.21 a share in the first quarter of 2012, this REIT has raised its payout by 600% to $1.56 per share as of Q4 2022. That, and share growth driven by American Tower’s surging dominance as a provider of cell tower space to major mobile carriers and thousands of other tenants, has combined for a total return that has more than quintupled the benchmark Vanguard Real Estate ETF and quadrupled the S&P 500 in the past decade, as seen below.

More towering returns ahead?
American Tower makes its money by leasing space on its approximately 223,000 communications sites around the world. Over 43,000 of them are towers and distributed antenna systems in the United States. This has long been and can be expected to continue to be a growth industry as telecommunications infrastructure deepens its penetration across the globe.

Here’s how American Tower, in a Q3 2022 earnings report, describes its own holdings and prospects: “High-quality, distributed global portfolio of communications assets well-positioned to drive steady, long-term growth, underpinned by strong, resilient secular demand trends.”

Those trends include replacing 4G with the much faster 5G technology, something that American Tower is deeply involved in, along with expanding into data centers, including through the purchase of data center REIT CoreSite for about $10.1 billion in a deal that closed last January. The big REIT then recently sold a 29% stake in that 27-center, 10-city operation for about $2.5 billion to private investment company Stonepeak while retaining operational rights for all of those properties.

That transaction helped pay for the CoreSite acquisition, American Tower said, while providing more dry powder for further expansion of its 5G networks, which require a mix of large cell towers and those smaller antennas and nodes.

Still a buy after all these years
So, is American Tower a buy? Analysts think so and give it a consensus target price of $265, which would be a nice upside of about 20% from the $218 or so the stock was trading for at this writing.

I agree it is, too. The chart below shows how consistently this REIT has grown its dividend, earnings, and funds from operations (FFO) in the past decade, and it also shows the share price drop of the past year — it’s down about 12% in the last 12 months — that has helped drive its price/FFO per-share ratio down to a very reasonable 16 times.

American Tower was the first REIT I owned when I bought shares about a decade ago, and I sold my stake too soon about five years ago. I now own shares of its biggest competitor, Crown Castle, but may get back into American Tower, too. After all, there’s no rule against owning two dominant companies protected by the same economic moat.

— Marc Rapport

Source: The Motley Fool