Why the price of the American Tower doesn’t worry me
AAmerican tower (NYSE: AMT) isn’t exactly a value buy right now. Trading at around $245 per share and just over 26 times its Adjusted Funds From Operations (AFFO) at the time of this writing, it is one of the most valuable real estate investment trusts (REITs) on the market. the market today. Although it is normally a signal to wait for a market correction to buy, there are several reasons why the price of American Tower does not worry me. Here’s a closer look at why.
Until 2021, American Tower operated almost exclusively in the world of communications real estate, leasing mobile phone and telecommunications towers to tenants such as Verizon, AT&T, and TMobile, among many others. Over its 25 years in business, it has become one of the largest communications operators in the world and the second-largest REIT by market capitalization, thanks in large part to its portfolio of more than 214 communications towers in 25 country. But communication towers are no longer its only activity. At the end of 2021, American Tower enters the world of data centers with the acquisition of Coresite (NYSE:COR) in the fourth trimester.
The acquisition cost American Tower $10.1 billion, but it added 25 data centers in eight major U.S. metropolitan areas, giving the company new exposure to a vital part of the tech world in which we live today. The acquisition is expected to bring a compound annual growth rate (CAGR) of 10% for AMT. This strategic play will undoubtedly add value to AMT in the long term as demand for data storage and 5G services continues to increase.
Growth of 5G
Fifth generation technology, or 5G, is quickly becoming the standard for wireless technology around the world. Given the robust and extensive infrastructure upgrades that are required to make 5G technology a reality for existing providers, the carriers with the most presence are the most likely to benefit. Forecasts place 5G growth at over 42% CAGR per year through 2028, meaning American Tower is well positioned to benefit in the future, especially as demand for technologies requiring 5G, such as virtual reality, the metaverse, video calls and games continue to grow.
Strong historical performance
The need for cellular towers has increased dramatically since the company started in the mid-1990s, which has allowed American Tower to perform superbly over the past two decades, surpassing the S&P500 for over a quarter of a century. Some think the long-term drivers and growth opportunities aren’t as robust as they were during the dot-com boom, but I think the demand for technology is growing at an even faster rate now than our world depends more than ever on telecommunications and data.
And the company’s recent performance confirms this. Last year was strong for the company as wireless demand increased due to pandemic-related factors, such as working from home. Year-over-year revenue jumped 19.2% in Q3 2021, while billings increased 4.9% and AFFOs increased 13.3%. The company has a leverage ratio of 4.9, which is close to the recommended maximum limit of five for most REITs; however, it remains at a healthy level given the $8.7 billion in cash the company had at the end of the quarter.
Reliable dividend payer
Since 2012, American Tower has increased its dividend payouts every quarter for 36 consecutive quarters. The company’s payout ratio is 52%, a fairly low figure compared to operating income. There is more than enough room to pay off debts, expand business operations and increase payments in the future. Given its track record of dividend growth, that makes it a pretty safe bet for long-term investors looking for reliable payouts.
American Tower’s price is of no concern given its growth prospects, strong business model and historical performance. Stock prices are down 16% since the start of the year Market volatility, making this an excellent opportunity for investors to buy AMT shares at a slight discount.
10 stocks we prefer to American Tower
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisor, tripled the market.*
They have just revealed what they believe to be the ten best stocks for investors to buy now…and American Tower was not one of them! That’s right – they think these 10 stocks are even better buys.
* Portfolio Advisor Returns as of January 10, 2022
Liz Brumer Smith has no position in the stocks mentioned. The Motley Fool owns and recommends American Tower. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.