This 3.2%-Yielding Dividend Stock Looks Like a Great Buy Despite Its Current Headwinds

American Tower (AMT -0.70%) is facing a barrage of headwinds this year. Higher interest rates, foreign exchange fluctuations, and customer consolidation have cut into its cash flow. Those issues have also weighed on its share price, which currently sits 30% below its 52-week high. That has driven its dividend yield up to 3.2%, a historically high level. 

While the data infrastructure REIT (real estate investment trust) is facing some stiff near-term headwinds, its long-term growth tailwinds remain firmly in place. That was evident in the underlying growth it delivered in the second quarter.

Solid growth beneath the surface

American Tower's revenue ticked up 3.6% in Q2 to nearly $2.8 billion. However, the REIT's adjusted funds from operations (FFO) slipped 0.4% to roughly $1.2 billion (and was down 2% on a per-share basis to $2.46). Several factors affected growth, including the effect of rising interest rates on its floating rate debt, foreign exchange fluctuations in its international tower operations, and lease cancellations following T-Mobile's merger with Sprint. 

These negatives masked the strong underlying growth of the company's core data infrastructure portfolio. CEO Tom Bartlett highlighted these catalysts in the Q2 earnings press release. He commented: "The momentum from the start of the year carried on into the second quarter, as our customers continued to invest in their networks to meet growing demand. We saw Consolidated Organic Tenant Billings Growth exceed 6% for the second consecutive quarter, solid leasing in our U.S. Data Center segment, and demonstrated a focus on cost controls, all supporting strong growth and attractive margin expansion."

Mobile carriers continued to lease additional space across the REIT's existing tower portfolio as they expanded their infrastructure to support faster 5G networks. Adding more tenants to its existing towers boosts its investment returns and profit margins. American Tower's property gross margin has increased from 69.6% in last year's Q2 to 70.3% last quarter.

Meanwhile, its data center platform continues to benefit from digital transformation. More companies are bringing their businesses into the cloud, driving growing data center capacity demand.

The underlying strength in the REIT's operations gave it the confidence to continue increasing its dividend. The payout has risen nearly 10% over the past year.

The long-term outlook remains bright

The strong demand for towers and data center capacity has the REIT boosting its full-year outlook:

Data source: American Tower. 

While not a huge improvement, the company's solid underlying growth drivers are pushing back against its headwinds.

The company expects those long-term tailwinds to remain robust. Bartlett stated in the earnings release that the company's global portfolio of infrastructure assets puts it in an excellent position to capitalize on the continued 5G investment cycle. The CEO sees it driving "sustained, elevated leasing growth" in the future. That growing cash flow will enable the company to continue investing in expanding its business while also increasing the dividend. This "sets us up well to deliver attractive shareholder returns over the long-term," according to Bartlett.

As it faces headwinds, its growth shines

American Tower's current headwinds are overshadowing the strong underlying growth of its tower and data center operations. They've also weighed on its share price, pushing up its dividend yield.

That headwind-driven sell-off looks like a great buying opportunity for long-term investors. They can lock in an attractively yielding dividend that should continue growing. In addition, the company offers compelling upside potential as its current issues fade and allow its long-term growth tailwinds to drive results.