Crown Castle (CCI -0.03%) has been a strong dividend growth stock since converting to a real estate investment trust (REIT). Since 2016, the communications-infrastructure REIT has grown its payout at a 9% compound annual rate. The company believes it can continue growing its dividend in the future.

It's facing some stiff headwinds that will slow its growth in the near term. That will cause its dividend to rise at a slower pace than its 7% to 8% annual target range.

However, the company expects growth to eventually reaccelerate, positioning it to achieve its target over the longer term. In the meantime, investors who buy shares are getting paid well while waiting for that reacceleration, given the stock's 5% dividend yield. 

Hurt by headwinds

Crown Castle recently reported solid first-quarter results, given the headwinds it's facing. The infrastructure REIT generated $828 million, or $1.91 per share, of adjusted funds from operations (FFO) during the period. That was up 2% from last-year's first quarter and met the company's muted expectations.

Lease cancelations resulting from Sprint's merger with T-Mobile impacted revenue during the period. Higher interest rates also acted as a growth headwind in the period.

These headwinds will continue to weigh on the company's performance this year. Crown Castle expects its adjusted FFO to grow by 4% overall and by 3% on a per-share basis. That's a deceleration from last year when both grew by 6%.

The company's dual headwinds mask the strong underlying performance of its communications infrastructure portfolio. CEO Jay Brown stated in the earnings report, "We continue to benefit from the growth in demand for connectivity and the development of 5G." He further noted: "We are well positioned with our comprehensive offering of towers, small cells, and fiber to drive another year of expected strong growth in 2023 that includes 5% organic revenue growth in our towers segment and an acceleration in our small cell revenue growth."

As Brown pointed out, the company's core tower business is growing at a 5% organic rate. Unfortunately, higher interest rates and the Sprint cancellations are muting some of that positive impact.

A speed bump, and then a reacceleration

Crown Castle's slowing adjusted FFO growth rate will impact its ability to increase the dividend. The REIT boosted its payout by 6.5% last October, pushing the annual payment rate to $6.26 per share.

That gives it a dividend payout ratio of 82%, based on its 2023 adjusted FFO forecast of $7.63 per share. While that's a reasonable level for a REIT, it's toward the high side, limiting its room to expand.

Because of that, the company doesn't expect to achieve its dividend growth target in the near term. CFO Dan Schlanger stated in the first-quarter earnings release: "We expect dividend growth in 2024 and 2025 to be less than our 7% to 8% target." That will likely also be the case this year, given its adjusted FFO growth forecast.

However, on a more positive note, the CFO stated, "longer term, we believe our comprehensive portfolio of infrastructure offerings will generate dividend per share growth in line with our target." Driving that belief is its view that demand for its comprehensive offering of communications infrastructure will continue growing.

Meanwhile, the headwinds from the Sprint cancellations and higher interest rates should fade. The company expects demand for its 40,000 cell towers to continue growing while its customers increasingly need to deploy more small cells across its extensive fiber-optic cable network. That should help accelerate growth in its adjusted FFO over the long term, supporting its ability to deliver dividend growth within its target range.

Slower but still growing

Crown Castle's headwinds will impact its ability to grow the dividend in the near term. However, it expects them to fade over the longer term, allowing it to capitalize more fully on the long-term 5G growth tailwind.

That should enable the REIT's dividend growth rate to reaccelerate. In the meantime, investors who buy shares these days can lock in an attractive and rising income stream.