American Tower Corp: A Surefire Way to Profit from the 5G Revolution?

A Solid 5G Stock You Likely Haven’t Considered

Tech stock investing is usually considered to be a relatively risky endeavor. And the risk could be even more pronounced if you go after a red-hot stock that has already shot through the roof.

Among the leading investment themes in tech right now is 5G. Numerous 5G stocks have entered the main stage of the tech arena. But the neat thing is, you don’t have to go after the trendiest tickers to get a piece of the action.

Check out American Tower Corp (NYSE:AMT), for instance. It doesn’t have the most exciting name, but it definitely deserves the attention of 5G stock investors.

Allow me to explain.

American Tower started off as a subsidiary of American Radio Systems Corp. in 1995. After years of growth through acquisitions, American Tower Corp has built a huge portfolio of communications infrastructure.

Today, the company is a leading independent owner, operator, and developer of multi-tenant communications real estate. It has a portfolio of more than 181,000 communications sites.

While the company is called American Tower, its presence is truly global. Its communication sites are located across 20 countries around the world. (Source: “American Tower Corporation: An Overview: Third Quarter 2020,” American Tower Corp, last accessed January 29, 2020.)

And now, 5G could be the next major growth driver for AMT stock.

You see, 5G networks offer 10 to 100 times faster average download speeds and five to 10 times lower average roundtrip latency compared to 4G networks, so 5G represents a big step forward.

But the deployment of 5G networks is not going to be an overnight process. Instead, they’re being deployed in layers, with different spectrum bands varying dramatically on coverage and capacity performance.

As it turns out, American Tower Corp is well positioned to benefit from the growing 5G deployment. In the U.S., the company’s portfolio consists of more than 40,000 towers, 95% of which are in suburban and rural areas.

In an investor presentation last year, the company explained that “Deployment of 600 MHz, 2.5GHz and other low and mid-band spectrum for 5G [is] expected to result in incremental demand for AMT’s suburban and rural macro towers.” (Source: “U.S. Technology and 5G Update: Q2 2020,” American Tower Corp, last accessed January 29, 2020.)

One of the critical points in American Tower’s history was its decision to become a real estate investment trust (REIT) in 2012. As a REIT, the company is required by law to return at least 90% of its profits to investors through dividend payments. In return, it does not have to pay corporate income taxes.

Right now, American Tower stock pays quarterly dividends of $1.14 per share, which translates to an annual yield of 2.1%.

With dividends, shareholders can collect a predictable stream of cash payments regardless of where the stock price is going. In other words, this could be a sure-fire way for investors to earn a cash return from a 5G stock.

Of course, dividend stocks can seem a bit boring for tech investors. But American Tower Corp is not standing still; its business has been growing.

According to its latest earnings report, the company generated $2.0 billion of total revenue in the third quarter of 2020, representing a three-percent increase year-over-year. Its property revenue, which accounts for the bulk of the company’s total top line, rose 3.4% from a year earlier to $2.0 billion. (Source: “American Tower Corporation Reports Third Quarter 2020 Financial Results,” American Tower Corp, October 29, 2020.)

And because American Tower is a REIT, it also reports something called adjusted funds from operations (AFFO). By comparing a REIT’s AFFO to its cash payout for a given reporting period, investors can see whether its dividend is safe.

In the third quarter of 2020, American Tower Corp’s AFFO came in at $2.23 per share, which marked a 15.5% increase year-over-year. Note that the amount covered the company’s third-quarter dividend of $1.14 per share nearly twice over.

The payout has been on the rise, too. In fact, since converting to a REIT in 2012, AMT stock has paid a higher dividend every single quarter. (Source: “American Tower Dividends Per Share,” American Tower Corp, last accessed January 29, 2020.)

The future is bright for American Tower stock, especially with the 5G tailwind.

In the company’s most recent earnings report, Tom Bartlett, chief executive officer, said, “Looking forward, as 5G deployments in the U.S. accelerate and as wireless technology evolves globally, we believe that our macro tower-oriented footprint is well-positioned to generate consistent, recurring growth and attractive returns.” (Source: American Tower Corp, October 29, 2020, op. cit.)

American Tower Corp (NYSE:AMT) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

American Tower Corp is a recession-proof and pandemic-proof company, due to the critical nature of its communications infrastructure assets.

And that quality is reflected in the resilience of its share price: American Tower stock tumbled alongside the market during the sell-off last March, but by early April, AMT stock had already completed a V-shaped recovery.

At the end of the day, there are tons of exciting 5G stocks. But for the more risk-averse investors, this seemingly-boring cell tower company could provide a relatively safe way to get on board the 5G profit train.