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This Infrastructure REIT Just Supercharged Its 5G Ambitions

Feb 09, 2021 by Matthew DiLallo
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Crown Castle International (NYSE: CCI) is one of the leaders in owning, operating, and developing communications infrastructure in the U.S. The infrastructure REIT, or real estate investment trust, currently operates more than 40,000 cell towers that are crucial to supporting the country's mobile network. In addition to that, it has about 50,000 on-air small cells to upgrade the country's wireless networks to 5G and more than 80,000 miles of fiber-optic cable that support those small cells and other fiber solutions.

The company sees a massive opportunity to continue building out 5G-related infrastructure over the next decade. It recently enhanced its prospects by signing a long-term deal with Verizon (NYSE: VZ) to support the telecom giant's 5G expansion plans. That deal increases Crown Castle's probability of delivering on its long-term dividend growth forecast.

Digging into the deal

Crown Castle recently signed a new long-term agreement with Verizon to support its 5G Ultra Wideband and 5G Nationwide deployment. Verizon committed to leasing 15,000 new small cells from Crown Castle over the next four years as part of the deal. These leases will have initial terms of 10 years. Thus, the agreement will supply Crown Castle with a steadily growing stream of stable cash flow.

Crown Castle won this additional business from Verizon because its "ability to offer a comprehensive solution with towers and small cells at scale provides us the best opportunity to deliver value as we support their wireless infrastructure needs," according to CEO Jay Brown.

The company's comprehensive offerings also played a key role in winning a multiyear anchor tenant tower agreement with DISH Network (NASDAQ: DISH) late last year. DISH will lease space on up to 20,000 of Crown Castle's communication towers as part of that deal. Further, it will receive certain fiber transport services. The agreement will help DISH facilitate the buildout of the first open, stand-alone, and virtualized 5G network in the country.

A decade of growth ahead

These recent agreements with Version and DISH have enhanced Crown Castle's backlog of 5G-related small cell developments, which now stands at 30,000. That implies a significant expansion of the company's existing on-air small cell portfolio, which ended last year at around 50,000 sites. Meanwhile, these deals have also enhanced the value of its existing infrastructure, as DISH will utilize space on some of the company's legacy towers and fiber solutions.

Crown Castle believes these deals are only the beginning as it sees a decade-long investment cycle as its customers deploy 5G. That outlook supports its view that it can increase its dividend at a 7% to 8% annual rate over the next several years. That's an impressive growth rate for a company that currently yields 3.3%, more than double that of the S&P 500. Add that payout to its projected growth rate, and Crown Castle appears poised to generate double-digit total annual returns.

A powerful growth plan

Crown Castle is betting big on 5G-related infrastructure. That strategy is already paying dividends, evidenced by its recent agreements with Verizon and DISH, which have enhanced its near-term growth prospects. Because of that, the REIT is increasingly confident in its ability to grow its dividend at a 7% to 8% annual rate. That should give it the power to produce above-average total returns, making it an ideal REIT for investors to buy and hold for the next several years.

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Matthew DiLallo owns shares of Verizon Communications. The Motley Fool owns shares of and recommends Crown Castle International. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.