The not-so-secret sauce for long-term success in stock market investing is to identify companies that are managed and positioned well to take advantage of trends and weather headwinds along the way.
Real estate investing in publicly traded equities is no exception. And there's one great example that combined perfect timing and strategy to take a commanding position in an emerging market that has turned out to be a key piece of world-changing technology.
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That would be American Tower (AMT -0.59%), which went public on July 8, 1998, selling 27.9 million shares at $23.50 each, raising about $625 million. If you had plunked $10,000 down in that first initial public offering for a pure-play cell-phone tower company -- and kept it -- that stock would now be worth $105,180 in what's now the largest of all real estate investment trusts (REITs), with a market capitalization of about $130 billion.
Nearly 15 years later, you also could have invested $10,000 in the company on the first trading day after Jan. 1, 2012, when American Tower officially became a REIT. Those shares would now be worth $46,450. Still not too shabby, especially when you add the dividends atop that. They've risen from $0.27 per share then to $1.39 now, a compound annual growth rate of 17.81%.
More room for more towering growth?
Of course, past performance is not a guarantee of future results, and the natural question here now is whether American Tower remains a growth stock.
Here at the Fool, a "yes" would mean a company can still take advantage of long-term trends in a large potential market to increase revenue and earnings more quickly than its peers and the overall market. American Tower may well fit that bill. The REIT has long had the scale and customer stickiness to grow quickly while exercising its competitive advantage among telecommunications infrastructure providers. Now it's extending that reach with the purchase of data-center REIT CoreSite Realty for about $10.1 billion.
That will add diversification and multichannel integration to American Tower's portfolio, a key ingredient for continued growth as cloud computing evolves beyond simple storage to a hybrid delivery of data control and other traditional information-technology functions.
The numbers are expanding by 5G
America Tower said in its third-quarter 2021 earnings report that revenue rose 21.9% from the year-ago quarter to nearly $2.5 billion and funds from operations (FFO), a key metric for REIT performance, increased 10.5% to $2.253 per share.
"As 5G deployments in the U.S. and Europe progress and 4G buildouts throughout our other markets accelerate, we remain confident in our ability to drive sustainable, recurring growth for years to come across our extensive existing portfolio," said Chief Executive Officer Tom Bartlett.
Indeed, investments by the major carriers in network improvements and expansions should continue driving up tenant billings by mid-single digits each year through 2027, while the global 5G services market is expected to have a compound annual growth rate (CAGR) of 46.2% through 2028. That sounds like a reasonable recipe for more revenue growth and shareholder payout in the future.
It's not a cheap buy, but it's essential business
From its humble beginnings as a spinoff from the sale of its parent company -- American Radio -- to CBS/Viacom, American Tower has grown its business into a portfolio of more than 43,000 communications sites in the U.S. and Canada and another 175,000 around the world.
The business has also expanded beyond leasing space on towers to include in-building systems, outdoor distributed antenna systems and other right-of-way options, and managed rooftops, altogether making it a major player in the rollout of 5G digital networks.
All this positions American Tower to continue expanding. It's not a cheap stock, trading at a price-to-earnings ratio of about 50, well above the S&P 500 P/E of about 30. The stock itself has been trading at about $285 a share lately after crossing the $300 mark this summer, giving it a relatively modest yield of 2% at that level. But altogether, this leader in an essential industry should be able to keep rewarding shareholders for years to come.
