American Tower Corp’s Technicals Point to Strong Growth
American Tower Corp (NYSE:AMT) continues to be one of the best 5G stocks as infrastructure takes center stage with the global expansion of 5G cell towers.
American Tower stock is up about 47% since March and has totally recovered from the COVID-19-fueled sell-off. Furthermore, the company reported strong first-quarter results and announced a quarterly dividend of $1.10 per share.
The global pandemic has wreaked havoc on many sectors, but 5G stocks like American Tower are essentially immune to what has been going on. That’s because 5G infrastructure makes 5G technology work.
Unlike older tech, 5G networks use midband and higher-frequency airwaves, which require more cell towers and fiber-optic wiring. 5G technology also requires small cell antennas and links to the cloud. To get there, they need companies like American Tower Corp.
That doesn’t mean AMT stock won’t experience some volatility, but that has nothing to do with the company’s underlying technology. Rather, any volatility in American Tower stock has more to do with broader investor sentiment about how the pandemic (or other economic news) will affect the global economy.
Case in point: the number of connected devices has been soaring, and is expected to grow significantly in the U.S. until at least 2025. That translates into a huge growth in overall traffic. (Source: “American Tower Corporation: An Overview, First Quarter 2020,” American Tower Corp., last accessed July 20, 2020.)
On top of that, mobile data usage is expected to grow at a compound annual growth rate (CAGR) of almost 30% over the next five years.
You can thank data hogs like Netflix Inc (NASDAQ:NFLX) for that.
While 5G technology encompasses a wide variety of sectors, including 5G networks, chip makers, higher-frequency airwaves, and cloud computing, one of the best opportunities is infrastructure.
AMT Stock Overview
American Tower is one of the largest real estate investment trusts (REITs) that owns and operates a global network of telecommunications real estate including 5G cell towers.
In a nutshell, American Tower provides the real estate and infrastructure necessary for today’s wireless communication networks. That includes about 180,000 communication sites in countries like the U.S., Mexico, Germany, Brazil, South Africa, and India. (Source: Ibid.)
Leasing towers to different telecommunication companies is what most people think of when it comes to 5G infrastructure. It’s the big vertical structure that sits on a piece of land.
American Tower’s tenants, who utilize different technologies—including telephony, mobile data, broadcast television, and radio—lease that vertical space on the tower and portions of the land it sits on for their equipment.
The joy with a tower is, adding additional tenants, equipment and upgrades generates additional revenue, with costs remaining relatively flat.
About 99% of the company’s revenue is generated from leasing its properties, as well as fiber and other urban telecommunications assets.
AMTs biggest clients include AT&T Inc. (NYSE:T), Verizon Communications Inc (NYSE:VZ), and T-Mobile.
Keep in mind, because American Tower is a REIT, it has to distribute at least 90% of its taxable income to investors in the form of dividends.
Since 2012, AMT has raised its dividend payout every single quarter. (Source: “Dividend History,” American Tower Corp., last accessed July 20, 2020.)
And over the last eight years, AMT’s quarterly dividend payout has increased 424%. In the first quarter of 2012, the company paid out $0.21 per share, and on May 19, American Tower’s board of directors declared a quarterly cash distribution of $1.10 per share.
Chart courtesy of StockCharts.com
Strong First-Quarter Results
On April 29, American Tower announced that its first-quarter revenue for the period ended March 31 increased 9.9% year-over-year to almost $2.0 billion. Property revenue was up 10.5% also at almost $2.0 million. (Source: “American Tower Corporation Reports First Quarter 2020 Financial Results,” American Tower Corp., April 29, 2020.)
The company reported first-quarter net income of $419.0 million, a 2.7% increase over the same prior-year period.
Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) increased 14.1% to almost $1.3 billion. Consolidated adjusted funds from operations (AFFO) increased 5.3% to $907.0 million. AFFO is a financial performance measure used by REITs that is similar to cash flow per share.
American Tower Corp ended the first quarter with $4.2 billion in total cash, which includes $1.3 billion in cash and cash equivalents and the option to borrow up to $2.9 billion under its revolving credit facility.
During the first quarter of 2020, American Tower repurchased a total of approximately 213,000 shares of its common stock under its stock repurchase program for approximately $45.0 million.
“Despite the challenges posed by the COVID-19 pandemic, we delivered a solid first quarter, including U.S. Organic Tenant Billings Growth of 5.6%, consistent international leasing activity and a 20% dividend increase,” said Tom Bartlett, CEO.
“We believe that the resilience and stability of our business model, our investment-grade balance sheet, substantial liquidity and the secular global growth trends in mobile data usage will help us manage through the ongoing crisis.” (Source: Ibid.)
5G isn’t going anywhere. In fact, it’s just getting started. And infrastructure is the cornerstone of 5G plays, which is why American Tower Corp is one of the most compelling 5G stocks for both the short and long term.