Crown Castle International (CCI 1.42%) has been making money for a long time and is positioning itself to take advantage of new mobile communications trends and territory that promise to keep delivering profits to investors for years to come.
And right now, this real estate investment trust (REIT) is beaten down, off about 25% this year like the market in general, hurt perhaps by some analyst ambivalence and perception of this as a technology stock. To me, this is an infrastructure play with plenty of life and is now a particularly attractive buy.
That's from my perspective as a recent retiree with a predilection for REITs for the equities portion of my portfolio -- or as I also call it, "life's savings" -- for their income and growth potential. Here are three reasons why I'm comfortable buying Crown Castle stock hand over fist.
1. Its track record and current portfolio
Crown Castle is the U.S.'s largest provider of shared communications infrastructure. While growing its holdings to more than 40,000 mobile towers, 55,000 small cell nodes, and 80,000 miles of deployed fiber optic cable, it has also been a money maker.
Since becoming a REIT in 2014, it's turned a $10,000 investment into $36,000 now, besting the S&P 500 by about 38% and crushing a good proxy for REITs, the Vanguard Real Estate ETF, by about 113%.
Data by YCharts.
Looking ahead to all of 2022, the company expects to rake in 10% more in rental revenues than it did in 2021 and grow adjusted funds from operations (FFO), a critical measure of a REIT's cash flow and thus ability to pay and grow dividends, by 6% over 2021.
But it's not just all those existing customers using all those big mobile towers, a group that includes all the major mobile carriers, that I find so promising about Crown Castle's business. It's also where it's betting on seeing the most growth going forward.
2. Building a big business in small cell nodes and last-mile data centers
Crown Castle says that even as it comes off a record year in tower activity, it's growing its focus on the edge of the network with an eye toward supporting the data needs for myriad applications existing and coming soon, including data centers. These aren't the big, uber-expensive kind like those owned by fellow REIT Digital Realty and rival American Tower. Instead, the focus is on what the company calls edge solutions: Small data centers and co-location sites at the edge of the digital network "near where people live and work."
It's sort of an equivalent to last-mile physical distribution space, only for the vast amounts of data constantly on the move. The company says it already has more than 900 such sites in place.
"I believe 2022 will be an important transition year for our small cells and fiber business," CEO Jay Brown said in the company's latest earnings news release. If you believe that's a good idea, that's a good reason to buy in now.
3. It's cheap for its growth prospects
In the Q1 2022 report, Brown says Crown Castle expects the deployment of 5G across the U.S. to continue to create long-term shareholder value, including dividend per share growth of 7% to 8% per year. That would build on a record of seven straight years of payout bumps that now has the stock yielding about 3.8% at a share price of about $156.
Crown Castle stock is down about 25% so far this year and is trading at a price/FFO ratio of about 21.6x, which seems pretty reasonable for a company with this kind of moat and prospects.
Buy now and hold for later. Buy later, too
There are REITs with higher yields, but many have much lower payouts. And not many have this combination of potential share price and dividend growth. Crown Castle is a growth stock wrapped into an income stock.
The market's awful now, and Crown Castle International has hardly escaped the carnage. Still, it has the experience, the plans, and to me, the clear potential to come back strong and continue to steadily outperform the greater market for years to come.
I own it now and plan to add to my little stake regularly.
