Investors looking to retire early need to look at companies with superior long-term growth prospects. Most mature industries tend to grow at the same rate as the overall economy, which means low to mid-single digits. Making an early exit out of the workforce means finding growth at a reasonable price.
One such stock is real estate investment trust (REIT) American Tower (AMT +0.76%). It has an enviable competitive position in a business with high barriers to entry and long-term growth prospects.
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American Tower operates in a duopoly
American Tower is a cell tower REIT that operates in more or less a duopoly with competitor Crown Castle International. Companies that operate in duopolies or monopolies generally have much more latitude to raise prices, which leads to higher profits. The company leases space on its towers to wireless companies, radio and television broadcasters, wireless data providers, and governments. In the United States, American Tower's biggest customers are AT&T, T-Mobile, and Verizon.
American Tower's leases are generally long-term, with automatic rent escalators. A typical lease lasts five to 10 years and includes automatic 3% increases in the U.S. Lease renewal rates are quite high given that alternatives may be costly or will provide a lower-quality signal. In general, churn rates -- in other words, non-renewed leases -- run around 1% to 2% per year.
Mobile data demand will increase at a mid-20% rate for the foreseeable future
The investment thesis for American Tower is based on long-term trends in the use of mobile data. According to one forecast, the typical mobile user consumed 11.4 gigabytes of data, and that usage is expected to increase to 41 gigs by the end of 2027. This represents a cumulative average growth rate of 24% per year. Very few companies operate in industries that are seeing mid-20% growth rates year after year.
American Tower has been highly acquisitive, and most recently announced a tender offer (in other words, a purchase) of data REIT Coresite Realty. American Tower has been building its data center business, which will allow it to blend mobile connectivity along with cloud storage and hosting. The deal will modestly increase funds from operations next year.
American Tower has an impressive history of dividend increases
American Tower recently increased its quarterly dividend by 6% to $1.39 per share. American Tower is a growth stock that has an unusual accomplishment: It has increased its dividend every quarter since 2012. Every quarter. At recent levels, it has a dividend yield of 1.9%, which is generally low for a REIT; however, American Tower is investing heavily in future growth.
American Tower is not a cheap stock, trading at roughly 30 times expected 2021 adjusted funds from operations (AFFO) per share. That said, fast-growing stocks generally command higher multiples. Very few industries are growing at the pace of mobile data usage, and investors should expect to have to pay up to get exposure. If stocks sell off, American Tower should be on a growth investor's shopping list.
