The Dow Jones Industrial Average is one of the most closely followed stock market indexes around. Comprising 30 of the largest public companies, it has long served as a benchmark for overall market performance -- and one that many investors want to beat.
In fact, plenty of great companies have consistently beaten the index. This includes equities which produce a steady flow of dividend income. A great example is American Tower (AMT -0.70%), a real estate investment trust (REIT) which owns and leases space on about 225,000 cell towers, small cell antennas, and similar infrastructure -- making it the largest independent tower operator in the world.
Let's see why American Tower might be a stock worth considering now.
Tax law requires REITs to pay out at least 90% of their taxable income as dividends. Those payouts, combined with its share price growth over the years, have helped American Tower outperform the Dow in that critical measure of total return.
This chart shows how much a $1,000 stake in this dividend stock made 10 years ago would be worth now compared with the SPDR Dow Jones Industrial Average ETF Trust (NYSEMKT: DIA), an exchange-traded fund that tracks the price and yield performance of the Dow.
AMT Total Return Level data by YCharts
Recurring revenue in a high-margin business
American Tower is hardly a diversified REIT. Most of this infrastructure REIT's revenue comes from just three tenants: AT&T, Verizon, and T-Mobile. But they and the company's other customers of all types must maintain access to that highly specialized, high-barrier-to-entry real estate to operate in a digital world.
They also typically sign long-term leases that provide a steady, predictable cash flow, and it's relatively easy and inexpensive to add tenants to towers, small cells, and data centers, giving the company high return margins for its own capital expenses.
American Tower also boasts geographic diversity. About 43,000 of its communication sites are in the United States and Canada, while the other 182,000 or so are in 24 other countries around the globe, including what the company calls "developing," "evolving," and "advanced" wireless markets from Argentina to Australia to Spain, India, and Uganda.
Image source: Getty Images.
Growing dividends from growing demand
The ever-increasing demand for data, driven by bandwidth-gobbling trends such as artificial intelligence, 5G, Internet of Things, and mobile video streaming, is likely to continue driving demand for expanding communication sites.
And as wireless providers invest in their networks to keep up with demand, this should result in sustained, growing revenue for American Tower. That should continue to translate into positive performance for shareholders of this equity REIT.
AMT Dividend data by YCharts
The above chart shows American Tower's dividend growth and share price movement over those same 10 years. The stock is about 40% off that all-time high of $288.36 on Sept. 8, 2021, but analysts give it a consensus target price of $243.43, which would be a very nice recovery.
Meanwhile, this real estate dividend stock has raised its payout for 13 straight years, including by an annualized 16% over the past three years. And with a payout ratio of 56% based on cash flow, the dividend seems safe and should have room to grow.
Time will tell, but the yield doubles the Dow's
So will it grow? Only time will tell, but with a towering presence in a vital industry that only grows in importance each year, there's reason for confidence that this passive income machine will keep producing. Meanwhile, you'll also enjoy nearly twice the market's average yield -- about 3.5% for American Tower versus 1.8% for Dow -- which is something that income investors will likely appreciate.
