Blue-chip stocks have the size, financial strength, market position, and prospects to help an investor's personal portfolio without a lot of drama.
American Tower (AMT -0.70%) is such a company. This real estate investment trust (REIT) is the world's largest private provider of telecommunications infrastructure, with a portfolio of nearly 226,000 communications sites worldwide, including about 42,000 in the U.S. and Canada.
This REIT grew by building and leasing mission-critical cell-tower space to mobile carriers and now thousands of other customers. Its expansion into small-cell technology and data centers should see it continue as a critical and profitable player in the rollout of 5G and other connective digital technologies for years to come -- with the safety of a blue chip added in.
An enviable record of total return
American Tower's revenue and cash flows have historically been stable, predictable, and recurring. Leases tend to be long term and have built-in escalators, and they generally renew at higher rates. Multiple tenants can, and do, occupy the same tower space and can be easily added at low cost while income grows.
This steadiness in demand, along with organic growth and acquisitions, has allowed American Tower to build an enviable record of return on investment to its shareholders.
The chart below shows how American Tower stock's total return has nearly doubled that of the S&P 500 since the REIT went public in 1998, an outperformance that gained serious steam with the mobile-device explosion that followed the introduction of the iPhone and Android smartphone in 2007 and 2008.
Data source: YCharts.
Strong total return but a softened FFO
Total return, of course, includes both share price and reinvested dividends, and American Tower has nicely met its obligation as a REIT to pay out at least 90% of its taxable income to shareholders as dividends. A nice run of annual increases has the payout at $1.57 per quarter, a payout that's grown at an annualized rate of about 20% since 2012.
A payout ratio of about 58% based on cash flow points to the sustainability of that dividend. The company just raised its outlook for 2023 property, revenue, EBITDA, and funds from operations (FFO), a key measure of a REIT's operating performance and cash-generation ability. The company still expects that figure to be a bit lower than last year's, a concern contributing to its share-price decline of about 13% this year.
A high yield from a low stock price
American Tower stock is currently yielding about 3.4%, near its highest since it began paying dividends. Growing dividends are a contributor, of course, but so is that soft stock price. American Tower stock is selling for about $187 a share, down more than 33% from its 52-week high of $282.47 and only about 5% higher than its 52-week low of $178.17.
Interest rates that affect investment by American Tower and its major customers, plus concerns about the tech sector in general, and broader stock market volatility have all contributed to this beatdown, but the company's fundamentals remain strong.
The company expects to generate robust growth in the coming years as it continues expanding its portfolio of tower-sites to meet increasing demand. This blue chip already has a market cap of $87 billion that makes it the second-largest REIT by that measure, behind only Prologis, the largest warehouse owner in the world.
Blue-chip prospects for growth and income
Their fortunes are peripherally intertwined. Both have grown large serving the needs of e-commerce around the world. After all, when orders are placed online, that means data is being moved. And that means American Tower real estate is likely involved somewhere along the way.
Altogether, this infrastructure REIT's diversified communication tower portfolio, predictable and growing cash flows, strong dividend track record, and growth prospects make it a compelling set-it-and-forget-it stock for growth and income investors alike.
