Crown Castle International (CCI 4.27%) has benefited from the increasing demand for communications infrastructure over the years. As data usage rises, mobile carriers are securing more cell tower space to house additional equipment to improve their networks. That's helped boost the real estate investment trust's (REIT) returns and cash flow, supporting steady dividend growth.
While the company expects demand for cell tower space to remain strong this year, it sees 2022 as more of a transitory period. The REIT anticipates an acceleration in 2023 as mobile carriers shift their infrastructure needs. That bodes well for its ability to grow the dividend in the coming years.
A strong start to a transitional year
Crown Castle recently reported its first-quarter results. The infrastructure REIT grew its adjusted funds from operations (AFFO) by 9% per share. That's a slowdown from the 14% increase in AFFO the company delivered in 2021. However, it's a faster pace than the 6% growth it expects for the full year.
CEO Jay Brown said in a press release, "We are seeing the benefit of a robust 5G leasing environment that contributed to the 9% AFFO per share growth we delivered in the first quarter and led to an increase in our operating expectations for the full year 2022." The continued strong demand for space on legacy cell towers is a big driver. Brown noted, "After experiencing the highest level of tower application activity in our history last year, we expect elevated levels of tower leasing to continue this year and believe we will once again lead the U.S. tower industry with 6% organic tower revenue growth."
Hitting the accelerator in 2023
While Crown Castle expects 2022 to be another strong year for its tower business, it will also be an important transition year for its small cell and fiber business. These infrastructure assets will play a pivotal role in supporting faster 5G network speeds.
Brown noted that Crown Castle is "focused on scaling our small cell deployment capabilities so we can accelerate from what we expect to be approximately 5,000 small cell nodes installed this year to more than 10,000 per year starting in 2023 as we deliver on our record backlog of more than 60,000 small cell nodes." That pipeline will grow the company's small cell portfolio to 115,000 nodes to go along with 40,000 towers and 80,000 route miles of fiber.
Crown Castle believes its comprehensive offering puts it in a better position to support the rollout of 5G networks by mobile carriers across the country. That's evident in its recent deal with T-Mobile US. In January, Crown Castle signed a 12-year contract to support T-Mobile's nationwide 5G network. The agreement increases T-Mobile's access to Crown Castle's towers and small cell locations, enabling the REIT to generate long-term tower and small cell revenue growth.
Deals like that have Crown Castle becoming increasingly confident in its dividend growth forecast. The infrastructure REIT expects the deployment of 5G to power dividend-per-share growth of 7% to 8% per year. It has delivered dividend increases above that forecast over the last two years -- including 11% in 2021 -- thanks to the strength of its tower business. It could provide better-than-expected growth in the future as demand for small cells accelerates in 2023 and beyond.
A 5G-powered passive income stream
Crown Castle got 2022 off to a strong start, thanks to the continued robust demand for cell towers in the U.S. While the company does expect growth to slow this year compared to 2021's robust level, it sees a reacceleration in 2023 as demand for 5G infrastructure takes off. That should give the REIT the power to grow its 3%-yielding dividend at an attractive rate in the coming years. This growing income stream makes Crown Castle a great option for investors seeking a lower-risk way to play the 5G megatrend.