Mobile communications have become as essential an underpinning of daily life as highways and power plants, and they can be expected to present infrastructure investment opportunities for years to come. A good place to look for those opportunities is among third-party providers of everything from towers and small cells to fiber to put in place to meet growing urban and rural demand for broadband service.
The demand is expected to keep surging along with the rollout of 5G wireless services. By one estimate, the global 5G services market that was at $41.48 billion in 2020 is expected to see a compound annual growth rate (CAGR) of 46.2% through 2028. There are multiple ways to invest in wireless, including the major cellphone companies. But here, let's look at the carriers for the carriers: The mobile tower companies.
Three REITs rule the mobile tower space
For as huge as this market is, the list of providers isn't. Three publicly traded real estate investment trusts (REITs) dominate the market and they provide investors easy entry into this sector.
According to the WirelessEstimator.com database, as of Sept. 27, 2021, there were 131 companies with 130,597 total towers in the United States and more than 400,000 mobile wireless cell sites and antennas. The top five own nearly 85% of them, in this order:
- American Tower (AMT 2.27%): 41,886
- Crown Castle International (CCI 1.70%): 40,567
- SBA Communications (SBAC 1.58%): 17,306
- Vertical Bridge: 5,089
- U.S. Cellular: 4,270
The first three of the above companies are real estate investment trusts (REITs), and together, they own just more than 75% of that critical infrastructure domestically.
American Tower is the largest of all REITs
Boston-based American Tower has been around since 1995 and has grown into the largest of U.S. REITs by market cap, at nearly $130 billion. The company owns and operates more than 183,000 communications sites worldwide, as well as in-building systems, outdoor distributed antenna systems, managed rooftops, and services that speed network deployment.
The company has grown organically and through acquisition, most recently with the purchase of data center REIT CoreSite Realty, which will add diversification and multichannel integration to AMT's portfolio, especially in cloud storage.
AMT's stock price has risen by 186% over the past five years and is yielding 1.91% from a dividend it has raised every quarter since 2012, not long after it became a REIT. That's below the FTSE Nareit All Equity REITs index yield of 2.84% but better than the 1.26% for the S&P 500.
In its 3Q21 earnings call, the company said it expects mobile data usage growth CAGR to be more than 25% over the next five years, and its own tenant billings to rise in the mid-single-digit range each year in the U.S. and higher abroad through 2027. Plus, it has $60 billion in global contractual backlog in non-cancelable leases. Altogether, this means AMT investors can reasonably expect more growth in share price and payout going forward.
Crown Castle grows its stake in every major U.S. market
Along with about 40,000 cell towers, Houston-based Crown Castle's portfolio includes about 80,000 small cell nodes and 80,000 route miles of fiber, and the company claims a presence in every major U.S. market.
In their Oct. 21 earnings call, Crown Castle CEO Jay Brown said his company was seeing "record levels of activity" in not only the ongoing upgrades of thousands of existing cell sites as part of the 5G buildout but also the tower co-location work with DISH Network as that company builds a nationwide 5G network from scratch.
Crown Castle's stock price and annualized dividend payout have both soared in the past five years, from about $73 a share in mid-December 2016 to about $200 now, with $3.00 a share in dividends then to $5.88 now, hikes of about 180% and 96%, respectively.
Brown says Crown Castle is "positioned to capitalize both on the current environment and to grow our cash flows and dividends per share in the near term and for years to come." If that plays out, that would be good news for buy-and-hold shareholders who get in now.
SBA Communications expects high leasing demand in 2022 and beyond
Boca Raton, Florida-based SBA Communications has been around since 1989 as an owner and operator of wireless communications infrastructure, including towers, buildings, rooftops, distributed antenna systems, and small cells in 14 markets across the Americas and South Africa.
In their third-quarter 2021 earnings call on Nov. 1, President/CEO Jeffrey Stoops said the company was seeing record service revenues and leasing and services backlogs at multiyear highs. He said the company expects "elevated domestic leasing activities to continue through 2022 and perhaps beyond."
SBA Communications stock is only yielding 0.63% based on an annual dividend of $2.32 per share and a stock price of about $371. The share price has nearly quadrupled in the past four years and now bears a price/earnings ratio of about 140, compared with about 30 for the S&P 500. The dividend, meanwhile, has been raised 57% in the past two years from $0.37 to $0.58 a share, but this is still a very expensive stock.
Powering essential from simple texts to the metaverse doesn't come cheap
None of these three REITs are cheap stocks. Their high prices have driven down their respective dividend yields lately, but the dividends do appear safe, given the powerful position each holds in the global supply chain of telecommunications infrastructure.
All the major data carriers are tenants to varying degrees of these three REITs, and long-term contracts with rent escalations add even more stability to these investments in times of inflation.
Being the lifeline for everything from simple mobile phone texts to the expanding world of the metaverse makes each of them a stock to consider buying for the long term, especially if income is secondary to growth for now.