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Is Crown Castle International a Buy?

Jan 22, 2021 by Marc Rapport
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Crown Castle International (NYSE: CCI) is not exactly a household name, but its tenants are, and they're a big reason this real estate investment trust (REIT) merits consideration for a buy, especially for the long run. Now in business for more than 25 years, Crown Castle became a REIT in January 2014 and says it has a presence in every major U.S. market with its portfolio of more than 40,000 cell towers, about 70,000 small cell nodes, and about 80,000 route miles of fiber.

The Houston-based company bills itself as the nation's largest provider of shared communications infrastructure. Its three biggest clients -- who make up three-fourths of its revenue -- are Verizon Communications (NYSE: VZ), AT&T (NYSE: T), and T-Mobile (NASDAQ: TMUS), all of which give Crown Castle the capital and imperative to take on a mission-critical role in the rollout of next-generation 5G networks.

The significance of that 5G capacity was made clear when DISH Network (NASDAQ: DISH) joined the list of clients, announcing in November that it had chosen Crown Castle as its first tower partner for the satellite and streaming company's plans to build out its own stand-alone, nationwide 5G network. That includes leasing space on up to 20,000 of Crown Castle's towers, as well as fiber transport and preconstruction services.

These are all blue-chip tenants for Crown Castle, outfits that, not surprisingly, sign long-term contracts that include multiple renewal periods, giving Crown Castle a steady cash flow that allows it to do what REITs are supposed to do: pay most of their net income out to stockholders in the form of dividends.

A solid history of paying dividends and growing its stock price

And that it has. Crown Castle's most recent quarterly dividend was $1.33 per common share declared on Oct. 22, $0.13 higher than the $1.20 it paid out for the first three quarters of the year and giving it a total payout of $4.93 per share for 2020. That's after raising annual dividend payments about 8% per year from 2015 to 2019.

Crown Castle's yield on Jan. 15, meanwhile, was a respectable 3.13% based on a stock price of $157.28. The company's stock price also has grown steadily from about $80 in its first days as a REIT in 2014, which raises the question, of course, if that will continue.

A lot of analysts think it will, according to The Wall Street Journal, which says that as of Jan. 15 a total of 10 raters called Crown Castle a buy, while seven said hold, and only one said sell. Their median stock price target was $173 a share, which would be a nice gain from the mid-$150s where the company's stock has been trading for the past month. Its 52-week high is $180, and it dipped as low as $114.18 in the spring before rallying as the year progressed.

The Millionacres bottom line

Telecommunications investment -- from towers to small cells to fiber -- appears to be one of the most likely areas of growth globally for years to come. And while Crown Castle's fortunes are closely tied to those major mobile players -- AT&T, T-Mobile, and Verizon -- adding DISH Network to the mix lends some diversity to that portfolio.

All four of these are some of the most stable, reliable rent-payers in the REIT space, and those towers are obviously critical, essential -- however you want to say it -- to what these telecommunications giants do.

Crown Castle, like its somewhat bigger competitor, American Tower (NYSE: AMT), has grown with the mobile and fiber telecommunications industry. As embedded as it is and successful as Crown Castle has been, there are good reasons to make its stock a long-term buy and hold.

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Marc Rapport has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends American Tower and Crown Castle International. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.