Tech stocks have gotten pummeled in recent months. The tech-heavy Nasdaq Composite index is down almost 30% from its recent high. Meanwhile, many other tech stocks are down even further.
However, some tech-related real estate investment trusts (REITs) have proven to be more resilient amid the tech stock sell-off. Shares of American Tower (AMT -0.02%) and Crown Castle International (CCI 0.47%) have lost less value than tech stocks and the broader stock market, delivering negative total returns of 16% and 17%, respectively. That makes them ideally suited for investors seeking upside to the long-term trends driving tech stocks with a little less volatility during a bear market.
Plugged into several key tech trends
American Tower's name doesn't tell the whole story. The infrastructure REIT operates a global cell tower platform and a U.S. data center business. That positions it to capitalize on several key tech trends, including digital transformation, 5G, and data mobility.
The REIT leases capacity on its tower assets and data centers to a range of companies under long-term leases. Those agreements provide the company with steady cash flow. It pays out slightly more than half its income to shareholders via dividends and uses its retained earnings to continue expanding its portfolio. Those growth-related investments have steadily increased its income, enabling the REIT to grow its 2.3%-yielding dividend at a towering rate over the years.
American Tower should be able to continue growing at a healthy rate in the future, even if there's a downturn in spending in the tech industry. Telecommunication companies need more network capacity to support growing mobile data usage and the rollout of 5G networks. Mobile data usage in the U.S. is on track to grow at a mid-20% compound annual rate through at least 2027, driving the need for more tower infrastructure. Meanwhile, the company should be able to expand its U.S. data center platform -- which it established last year by acquiring CoreSite Realty and DataSite -- with aspirations to take it global in the future. That should enable American Tower to continue growing its income and dividend at attractive rates in the future, with the REIT planning a 12.5% dividend hike this year.
Towering growth ahead
Crown Castle International has a much more focused strategy. It concentrates on the U.S. mobile market. However, in addition to operating cell towers, it also owns fiber assets and small cell nodes, key infrastructure for supporting faster 5G networks. It leases capacity on this infrastructure to mobile carriers under long-term contracts.
The REIT sees a decade-long investment cycle ahead to support the expansion of 5G networks. The initial phase featured adding more tenants to existing cell towers, which has been a big growth driver in recent years. For example, the company signed a long-term agreement with DISH Network in late 2020 for space on 20,000 towers and fiber transport services to support the rollout of DISH's 5G network. Meanwhile, the company sees small cell deployment accelerating next year, helping drive growth over the longer term. It signed an agreement with Verizon last year to deploy 15,000 new small cells over the next four years to support Verizon's 5G network expansion.
Crown Castle believes that its investments to grow its infrastructure platforms will enable it to continue increasing its dividend. The REIT expects to be able to expand its payout by 7% to 8% per year for the foreseeable future. That adds to the attraction of the REIT's 3.5%-yielding dividend.
Tech-driven upside with less volatility
American Tower and Crown Castle are capitalizing on several key trends driving the tech sector's growth. However, they have much lower volatility thanks to their secured rental contracts and higher-yielding dividends. Because of that, they offer a lower-risk way to invest in the tech sector.