American Tower (AMT -0.48%) is currently battling some fierce headwinds. They're slowing its growth, which has weighed on its stock price. The slump in its shares has driven its dividend yield up over 3%.
The global data infrastructure REIT expects those headwinds to eventually fade and give way to strong tailwinds. These conditions should drive demand for its infrastructure, reaccelerating growth. As a result, the company should be able to maintain its impressive dividend growth.
Here's a look at what it sees ahead.
Towering growth ahead
CEO Tom Bartlett gave investors a glimpse of what the company sees ahead on its first-quarter conference call. Bartlett said, "Looking out over the next several years, we see an environment that is supportive of continued strong performance in the U.S. as the 5G investment cycle progresses and densification occurs."
He noted that American Tower's base case is that its U.S. tower business will deliver annual organic growth of at least 5% to 6% over the next five years, excluding the near-term headwinds from Sprint's merger with T-Mobile. Bartlett pointed out that this "closely mirrors the 6.2% average organic growth we experienced between 2016 and 2020."
He then stated:
Industry estimates suggest total monthly mobile data consumption that will require increased speed and lower latency is set to grow at a compounded annual rate of above 20% over the next five years, which we expect to be driven by continuous increases in mobile network utility, irrespective of potential impacts from any one category of new applications. As a result, we believe our customers' networks will need to provide at least two times the network capacity they have today in three to four years or roughly three times today's capacity as we approach the end of the decade.
This forecast suggests that mobile carriers will require more tower infrastructure to support their network needs. American Tower believes it's ideally suited to meet this demand, given its 43,000-site U.S. tower portfolio. It has significant capacity to add more equipment and tenants to its existing site to meet its customers' growing need for infrastructure.
This outlook drives American Tower's view that it will grow its property revenue and adjusted funds from operations at healthy rates. That will give it more recurring cash flow to pay dividends.
Data-powered growth
American Tower also sees tremendous growth potential for its CoreSite data center platform, which it acquired at the end of 2021. Bartlett stated on the call, "we're still in the early stages of a broader digital transformation movement. Each year, data center workloads and compute instances continue to grow at a rate of approximately 12% in the vast majority of all new IT architectures deployed into cloud and hybrid environments that CoreSite is uniquely positioned to support." Because of that, American Tower sees "a long tail of opportunity to continue growing and scaling our campuses."
Another driver of the CoreSite acquisition was to enable the company to develop solutions that leverage its tower and data center capabilities to meet the future needs of its customers. Bartlett believes the combined communications real estate platforms have positioned American Tower "as a leading infrastructure provider for the networks of the future." This strategy should provide additional value to its customers, which should grow shareholder value over the long term.
Powerful tailwinds
American Tower believes its U.S. tower and data center platforms will grow briskly in the coming years as they benefit from long-term tailwinds driving those sectors. That should boost cash flow, giving it additional funds to pay dividends.
American Tower has grown its dividend briskly since becoming a REIT a decade ago, which seems likely to continue in the future. Because of that, it's a compelling stock for investors seeking income and upside potential.
