Going big into small cell networks may be setting up Crown Castle International (CCI -0.03%) for more years of towering shareholder paybacks.
Since its founding in 1994, the real estate investment trust (REIT) has grown into the second-largest provider of cell towers in the industry, leasing a network of more than 40,000 of them across the country to myriad well-heeled customers, including the big wireless carriers such as AT&T, T-Mobile US, and Verizon Communications.
Along the way, Crown Castle has provided a total return of about 1,360% since going public in 1998, and in the past 10 years alone would have turned a $10,000 investment into $47,500, besting the S&P 500 over that same decade by nearly 25%.
CCI Total Return Level data by YCharts
Going big into keeping it small
Those big towers command long-term leases and escalating rents, and they still provide the bulk of Crown Castle's revenue, but now the company is thinking small, investing heavily in new technologies that require storing and moving vast amounts of data.
That includes supporting the Internet of Things, including virtual reality applications, autonomous vehicles, and drones, along with in-building wireless networks and small cell antennas nesting on streetlights and utility poles that extend broadband digital access through neighborhoods and across cities. Just one example of the kind of addressable markets Crown Castle is rushing to serve: 70% of commercial buildings have insufficient wireless coverage, the company claims.
Image source: Getty Images.
That work also includes heavy investment in emerging wireless infrastructure such as Citizens Band Radio Service (CBRS) spectrum tools for multi-tenant buildings, micro trenching that dramatically cuts down the time and expense of laying fiber cable, and "edge" solutions, which depend on small data centers located within proximity of where that data is being created to lower latency.
Crown Castle already has 80,000 route miles of fiber in place and 115,000 small cells either active or under contract, including a backlog of more than 60,000 that it says will be installed at a pace of more than 10,000 a year.
The company says it already has more than 900 such data centers, points of presence, and colocation sites in place, and its commitment to new technologies along with its continued, albeit maturing, business in full-size mobile towers should set this REIT up for another 10 years of market-beating performance.
An important transition year
"I believe 2022 will be an important transition year for our small cells and fiber business," CEO Jay Brown said in the company's first-quarter earnings announcement.
That transition will create new revenue opportunities while the company builds on what it calls industry-leading growth in its existing tall tower business. Those factors helped prompt Crown Castle to raise its adjusted funds from operations (AFFO) outlook to a 6% rise from 2021 through 2022, and "extend our opportunity to create long-term value for our shareholders while delivering dividend per share growth of 7% to 8% per year," Brown said.
Altogether, Crown Castle appears set to continue royally rewarding shareholders going forward as it has in the past. And now could be a particularly good time to buy. The share price is about $190, down about 9% year to date. The stock appears reasonably priced right now, trading at a funds-from-operations-to-price ratio of about 27, compared with about 21 for its largest competitor, American Tower, and 32 for the third-largest tower company, SBA Communications.
Crown Castle has also raised its dividend for seven straight years, including by about 8.5% in the past three years, and is currently yielding about 3%. That means you can enjoy some passive income while you watch your core investment in this infrastructure REIT grow.
