Dividend stocks have historically delivered market-beating performance. The average dividend stock has delivered a nearly 10% average annual total return since 1973, outpacing the 8.2% average total return of stocks in the S&P 500 index, according to data by Hartford Funds and Ned Davis Research. Meanwhile, companies that have routinely increased their payouts delivered even higher total returns (10.7% on average).
With most stocks selling off this year due to concerns over rising interest rates and economic growth, many offer even bigger upside potential in the near term. Three dividend stocks that Wall Street analysts think have fallen too far are infrastructure REITs American Tower (AMT -1.16%), Crown Castle (CCI -2.54%), and SBA Communications (SBAC -2.43%). Analysts see double-digit near-term upside potential in all three. In addition, the trio's unstoppable track record of growing their dividends sets them up to produce attractive total returns over the longer term.
Two big growth drivers
Shares of American Tower have fallen more than 25% from their recent high to around $220. However, Wall Street analysts currently have an average price target of $246 per share, implying about 12% upside from here. In addition to that share price appreciation potential, American Tower pays an attractive dividend. It currently yields 2.6%, well above the 1.7% average of stocks in the S&P 500.
American Tower has an excellent track record of growing its dividend. The company has increased its payout at a more than 20% annual pace since converting to a REIT in 2012.
It should have no problem continuing to grow its payout. While American Tower is facing some near-term headwinds, it has two big long-term growth drivers: 5G and mobile edge. Mobile carriers are spending heavily to build out their 5G networks, driving demand for American Tower's communication infrastructure assets. Meanwhile, the company acquired data center REIT CoreSite Realty to capture the opportunity to link cloud computing with mobile networks and capitalize on the mobile edge trend. These catalysts suggest that American Tower should have no problem growing its dividend in the coming years.
A decade-long investment cycle
Crown Castle's stock price has tumbled more than 35% this year, pushing shares down to around $136. That's 15% below the average analyst's price target. In addition to that upside potential, Crown Castle offers a compelling dividend that yields 4.6%.
Crown Castle has increased its dividend every year since becoming a REIT in 2014, growing it at an impressive 9% compound annual rate. The infrastructure REIT believes it can continue increasing its payout in the future, targeting 7% to 8% yearly growth over the long term.
Driving that view is the decades-long investment cycle it sees ahead for 5G. The REIT believes mobile carriers need more tower space, small cell nodes, and fiber capacity to support faster network speeds. For example, Crown Castle sees an acceleration in small cell node deployment next year from 5,000 to 10,000 new sites. The company's growing cash flow from these investments will support a higher dividend, positioning the REIT to produce strong total returns.
Continued rapid growth ahead
Shares of SBA Communications have fallen roughly 25% this year to about $296. However, analysts believe shares should trade at around $328, implying an 11% upside. In addition, SBA Communications offers a 1% dividend yield.
While that's a relatively low dividend yield for a REIT, SBA Communications has grown its payout rapidly in recent years. It has increased the dividend by over 90% since initiating one in 2019.
SBA Communications should be able to continue boosting its payout at a rapid rate. Its revenue and cash flow are growing fast -- it's delivering mid-teens growth in 2022 -- as it acquires more tower sites. Meanwhile, its leverage ratio is on track to end the year at or below the low end of its leverage target. SBA also has a low dividend payout ratio. That gives it lots of financial flexibility to acquire more tower sites to grow its cash flow and dividend.
Lots of upside for these dividend stocks
Most Wall Street analysts believe American Tower, Crown Castle, and SBA Communications shares have fallen too far this year. Because of that, they see double-digit near-term upside potential in their share prices. Meanwhile, the communications infrastructure REITs have several catalysts to drive their cash flow higher, which should continue powering unstoppable dividend growth. That sets them up to potentially generate very attractive total returns in the coming years, making them look like enticing buys right now.