Shares of Crown Castle (CCI 0.67%) have been under significant pressure this year. The real estate investment trust (REIT) focused on communications infrastructure has slumped more than 28%, in part because of the impact of higher interest rates.
However, one of the benefits of this lower share price is that it has driven up Crown Castle's dividend yield. The infrastructure REIT's yield is now up to almost 5% after it recently increased its payout by another 6.5%. With the company projecting more dividend growth, it's becoming a powerful passive income producer.
Facing some near-term headwinds
Crown Castle is currently on track to achieve its full-year forecast. That would see the REIT grow its adjusted funds from operations (FFO) by about 6%.
The company recently reaffirmed that forecast when it reported its third-quarter results. It posted solid numbers for that period, growing its site revenues by 8%. Its growth drivers included adding more tenants to its towers and other infrastructure and contractual rental rate increases. Those factors helped drive 5% growth in its AFFO per share for the quarter.
However, the company is starting to see some growth headwinds that will impact its results next year. The merger of Sprint with T-Mobile (TMUS 0.48%) is leading the mobile carrier to consolidate its infrastructure by canceling some small cell and fiber solutions leases with Crown Castle. In addition, the rapid rise in interest rates will result in higher interest expenses on the 15% of Crown Castle's debt that isn't at a fixed rate. As a result, the REIT sees AFFO per share growth decelerating to 4% in 2023.
The 5G megatrend hasn't faded
While Crown Castle sees some headwinds slowing its growth rate in 2023, the long-term tailwinds driving demand for cell towers remain strong. That's because they serve as the backbone infrastructure for 5G networks. That's leading mobile carriers to sign long-term contracts with Crown Castle for additional tower space.
They're also increasingly utilizing small cell nodes to enhance their network capacity. Crown Castle expects its small cell node deployment to accelerate next year, doubling to 10,000 nodes. More than half of those nodes will be collocated on existing fiber optic networks, enhancing its investment returns.
Overall, Crown Castle has now secured $40 billion of future revenue from long-term leases secured by its towers, small cells, and fiber optic network. Combine that with its largely fixed cost structure and the growth it sees ahead in demand, and the company expects its cash flows to continue growing.
More dividend growth ahead
This outlook supports Crown Castle's view that it can deliver annual dividend growth in the 7% to 8% range over the long term. That would continue the company's unbroken dividend growth streak since becoming a REIT in 2014. It has increased its payout every year, growing it at a 9% compound annual rate. With more dividend growth ahead, investors appear poised to earn a lot of passive income.
At the current dividend rate and stock price, a $1,000 investment in Crown Castle will produce about $50 of passive income over the next year. That's more than double what a similar investment in an S&P 500 index fund would deliver (its current 1.8% dividend implies a $1,000 investment would produce about $18 of annual passive income). Meanwhile, with Crown Castle projecting to grow its dividend by 7% to 8% per year over the long term, the yearly passive income stream on a $1,000 investment could rise to more than $65 in the next five years, pushing the cumulative total to around $290.
An unstoppable passive income stock
Nothing has stopped Crown Castle from growing its dividend since it became a REIT. While it's currently experiencing some growth headwinds that have weighed on the stock price, it expects to continue growing its payout at a healthy pace in the future. With the dividend yield now up to 5%, it looks like a great option for passive income seekers.