Investing in income stocks often comes with the trade-off of reduced growth prospects. That's because income stocks are typically mature, which translates into limited growth catalysts and higher dividend payout ratios.
But there are exceptions to this rule. I believe that the communications infrastructure real estate investment trust (REIT) Crown Castle International (CCI -0.67%) and experiential REIT VICI Properties (VICI -0.28%) are such exceptions. Here's why I believe the two stocks possess attractive growth potential to go with their high yields.
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1. Crown Castle
Crown Castle's $75 billion market capitalization makes it the second largest cell tower REIT in the world behind American Tower (AMT -0.70%). Contrary to its name, the entirety of Crown Castle International's 40,000-plus cellular communications towers, 80,000 route miles of fiber, and 115,000 small cells are located in the U.S. Since American Tower is internationally oriented, this makes Crown Castle the largest pure-play communications infrastructure REIT in the U.S. The company has a presence in every major market in the country.
Large wireless carriers like T-Mobile and Verizon Communications lease Crown Castle's communications infrastructure to provide their customers with cellular service. Because of their continued reliance on Crown Castle to offer their wireless services to customers, telecom companies agree to initial lease terms that last up to 10 years. Even better for Crown Castle is that those contracts have fixed 1.5% annual lease escalators for small cells and 3% annual lease escalators for cell towers built into them. While this is meaningfully lower than the most recent 7.9% inflation rate for last month, it's enough to just about keep pace with the historical average annual inflation rate of 3.3%.
The nature of Crown Castle's business model leads to steady and growing revenue right off the bat. And it gets even better. Analysts are projecting that average monthly mobile data consumption per user in North America will soar from 11.8 gigabytes (GB) in 2020 to 49GB in 2026. That's because emerging trends like the Internet of Things and virtual reality will require higher-speed mobile connections and lead to even more mobile data consumption.
These tremendous growth catalysts should allow Crown Castle to meet its long-term dividends per share growth target of 7% to 8% annually. And best of all, income investors can snatch up Crown Castle's market-topping 3.4% dividend yield at a price to adjusted funds from operations (AFFO) per share of 23.5. That's hardly an unreasonable valuation to pay for a stock that should keep growing at a high-single-digit annual rate for the foreseeable future.
2. VICI Properties
VICI Properties will have a portfolio of 43 world-class entertainment, gaming, and hospitality properties in 15 U.S. states once its acquisition of MGM Growth Properties (MGP) closes in the first half of this year. These are leased out to tenants who operate the properties.
The leases for VICI Properties' are triple net leases, which means that tenants are responsible for paying property insurance, maintenance, taxes, and utilities on top of the monthly base rent check. VICI Properties' most noteworthy properties include Caesars Palace Las Vegas, Harrah's Las Vegas, and the Venetian Resort Las Vegas, which draw tourists from around the world.
Thanks to its excellent property selection and group of industry-leading tenants like Caesars Entertainment (CZR -3.76%) and Hard Rock, the company's portfolio of properties is 100% occupied. The irreplaceable nature of VICI Properties' real estate is why the company's weighted average lease term is 43.2 years. Along with the weighted average 1.8% annual contractual rent escalations of VICI Properties' leases, this creates a secure and growing stream of revenue for the company.
This explains how VICI Properties has been able to grow its AFFO per share at a 10%-plus annual rate from 2019 to 2021. Paired with a very sustainable dividend, VICI Properties should hand out high-single-digit dividend increases each year over the medium term.
Yield-hungry investors can buy VICI Properties' market-crushing 5.4% dividend yield at a price to AFFO per share of 14.7, which is a deal for the stock's quality.
