Increasing my position in American Tower
The company delivers attractive dividend growth at 18.5% CAGR for the last 5 years, and a dividend yield right below 2%.
This month’s capital inflow into my Nordnet account involves acquiring more American Tower stock. I previously held 12 shares in my Global Quality account with a cost basis of $268 per share, with a weighting of 3%. After purchasing three additional shares for 7413 kr, the position has increased to 3.9% of my portfolio.
Investment thesis
The investment thesis is quite simple; there will be an increasing need for communication infrastructure as every device will produce and transfer more data. As the need for communication infrastructure increases, telecom companies need to put more equipment on American Towers properties. The business model consists of mostly fixed costs to build the towers and acquire the land they sit on. By looking at the picture below, you can see how well the operating leverage works in their favor. In this example, the return on investment increased from 3% from one tenant to 24% with three tenants.
The stock price
The stock price movement has been good for the last five years, and the 5-year monthly beta stands at 0.34. As measured by the beta, the stock is not highly correlated to price movements in the general stock market. Having the company in my portfolio provides an excellent diversifying effect.
By looking at the picture below, you'll see that the returns for the last five years have been great, beating the S&P 500 with a good margin when also accounting for the dividends received.
Dividend Growth
American Tower has provided great total return over the last 5-10 years, and since the company is a REIT, it has to return most of the earnings to shareholders as dividends. Dividends have increased by 18.5% annualized over the last five years and provide excellent dividend growth and should do that for the foreseeable future. Future dividend growth should be covered by further reinvestments in the business providing greater earnings power.
Valuation
You will rarely find high-quality firms cheap at these times, and AMT is not an exception. But according to the dividend yield, the company is trading at current historical levels. If they’re able to increase this by 10%+ for ten years, you will have a solid 5%+ yield on cost and most likely significant capital appreciation along with it.
EV/EBITDA = 28.9 vs 24.5 as the five-year average
Dividend yield = 1.92% vs 1.9% as the five-year average.
Disclosure
Always do your own research before investing! I hope that you enjoyed this post but It should not be considered an encouragement to buy the companies that I include in my portfolio or be taken as financial advice. If you want to receive investment advice you should contact a professional.