Would you like to expose your portfolio to the ongoing artificial intelligence (AI) revolution without risking your hard-earned money on growth stocks? Well, you're in luck.
American Tower (AMT -0.70%) is a legendary dividend-paying stock poised to benefit from the proliferation of new AI applications. Best of all, this stock could keep raising its dividend payout even if the AI investing trend fizzles out like the Internet of Things (IoT), the metaverse, and cryptocurrencies did.
It's hard to tell which company's AI applications are going to be the most popular a few years from now. One thing we know for sure, though, is that more advanced digital applications tend to require more data transmission.
Surging demand for data transmission from internet service providers such as AT&T and Verizon in the U.S. and its international peers is great news for American Tower shareholders. With around 224,000 towers around the world and 28 data centers mostly in U.S. metro areas, you won't find another company better positioned to grow on the back of the AI revolution or whatever technological trend comes next.
Do it for the dividends
American Tower is a real estate investment trust (REIT), which means it can avoid paying income taxes as long as it distributes at least 90% of its income to shareholders as a dividend. At recent prices, American Tower's dividend offers a 3.9% yield, and the company has a history of raising it rapidly.
With the exception of the first quarter of 2023, American Tower has increased its dividend payout every three months since the beginning of 2012, and the gains have been significant. The payout has risen by 93% over the past five years, and it's up a whopping 458% over the past decade.
There's rarely been a better time
There's always at least one technological trend pushing up demand for data-transmission sites, but there's rarely been a better time for long-term-minded investors to start an American Tower position. It's been trading at a lower price than investors have seen since early 2019.
Building new data centers and mobile data transmission towers requires lots of capital. Since March 2022, the Fed has been raising interest rates. Higher interest expenses are expected to lower adjusted funds from operations (FFO), a proxy for earnings used to evaluate REITs, this year to $9.70 per share at the midpoint of management's guided range, which is 0.6% less than it reported in 2022.
Image source: Getty Images.
An FFO contraction from a company famous for rapid growth is disturbing, but it's most likely temporary. The Federal Reserve jacked up rates by about 4% in 2022, and those rate rises are just now being felt on American Tower's bottom line.
Thanks to decreasing signs of inflation, the Fed has raised rates by just 1% so far this year. While there could be more interest rate raises ahead, they'll most likely be minor ones that American Tower can manage without having to predict another earnings contraction.
Demand for data centers and towers is still strong. American Tower expects total tenant billings to rise 6.5% year over year. With billings rising faster than interest expenses, this REIT's bottom line could return to growth in 2024.
It won't happen overnight, but the seemingly endless demand for more data transmission related to AI applications, or whatever trend comes next, will most likely help American Tower's bottom line start climbing rapidly again. Putting some shares of the stock in a portfolio at its beaten-down price looks like one of the smartest long-term investment decisions anyone can make right now.
