Crown Castle International Corp: A 5G Stock for Risk-Averse Investors?

Crown Castle International Corp: A Low-Risk 5G Stock?Looking for 5G Stocks? Read This

If you are looking for growth in your investment portfolio, 5G stocks are worth checking out.

With ultra-low latency and data transmission speed up to 100 times faster than 4G technology, 5G networks have the potential to revolutionize a whole bunch of industries.

But, as is the case with most “next big things,” investing in 5G stocks is not risk-free. While a lot of companies could prosper in the 5G era, not everyone will be a winner in the long term.

And that’s why today I want to talk to you about a 5G stock that’s worth considering for investors who don’t like risk all that much: Crown Castle International Corp (NYSE:CCI).

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Headquartered in Houston, Texas, Crown Castle is a real estate investment trust (REIT).

Now, you may be wondering how a real estate company has anything to do with 5G. Well, the answer lies in the type of assets owned by this REIT.

You see, instead of owning shopping malls or apartment buildings, Crown Castle focuses exclusively on communications infrastructure. Right now, the company’s portfolio consists of around 40,000 cell towers, more than 70,000 small cell nodes, and approximately 80,000 route miles of fiber. (Source: “Company Overview May 2020,” Crown Castle International Corp, last accessed July 30, 2020.)

In fact, Crown Castle is currently the largest provider of shared communications infrastructure in the United States. And that means it is well positioned to capitalize on the 5G boom.

You see, even though wireless carriers also own wireless infrastructure, it is not enough to provide enough coverage and capacity to serve their customers. Meanwhile, building more wireless infrastructure is costly, timely, and often faced with regulatory scrutiny. As a result, carriers often lease infrastructure from companies like Crown Castle International Corp.

Here’s the neat part: as mobile data consumption increases, wireless carriers will have to spend more on network infrastructure.

From 1990 to 1999 (roughly the 2G era), the average annual U.S. wireless capital expenditure was approximately $7.0 billion. From 2000 to 2009 (the 3G era), the number rose to $21.0 billion. And then, from 2010 to 2018 (as 4G arrived), U.S. wireless capital spending grew to $28.0 billion annually. (Source: Ibid.)

With the deployment of 5G, people are expected consume even more data than before, meaning wireless carriers will need denser networks of towers and small cells. Crown Castle’s infrastructure could come to the rescue.

In the company’s latest earnings report, Chief Executive Officer Jay Brown said,

We continue to anticipate a significant increase in industry activity in the second half of this year as our carrier customers invest to improve their existing networks and as 5G investments ramp. Although the full rebound in overall industry activity on towers is taking a bit more time to materialize than we previously expected, we remain on track to generate at least 7% growth in AFFO per share this year.

(Source: “Crown Castle Reports Second Quarter 2020 Results,” Crown Castle International Corp, July 29, 2020.)

He added, “Looking beyond this year, I am excited about what will likely be another decade-long investment cycle for our customers with the deployment of 5G, and see the potential for our AFFO per share growth to improve next year.” (Source: Ibid.)

While CCI stock does not always come to mind when people talk about soaring 5G stocks, its share price performance has been nothing short of impressive. Over the past five years, Crown Castle stock has returned more than 150%.

Crown Castle International Corp (NYSE:CCI) Stock Chart

Chart courtesy of StockCharts.com

Here’s where things get more interesting: other than delivering massive gains through stock price appreciation, Crown Castle stock also provides investors with regular dividend payments.

Right now, CCI stock has a quarterly dividend rate of $1.20 per share. Over the past five years, Crown Castle stock’s quarterly payout has grown by 46%. (Source: “Common Stock Dividend History,” Crown Castle International Corp, last accessed July 30, 2020.)

I know, compared to a soaring stock price, dividends don’t really seem like much. However, keep in mind that dividend payments are independent of stock price movements. That is, CCI stock could be falling, but if the company decides to pay a dividend, investors will get that payment—in cash. It’s a return that shareholders can earn regardless of the overall market environment.

Last but certainly not least, Crown Castle International Corp has a durable business model. The company leases its infrastructure assets to wireless carriers, generating a recurring and predictable stream of revenue in the process. And with contracted escalators, that revenue stream will grow as time passes.

Analyst Take

In today’s market, there’s no shortage of companies with the potential to do well as a result of increasing 5G adoption.

But if you are a risk-averse investor, Crown Castle stock could offer a relatively safe way to get some exposure to the booming industry.