CCI - Crown Castle Continues To Be A Cash Flow Machine

Summary

• The 5G rollout globally is still in the early innings, which will greatly benefit the likes of Crown Castle Inc.
• Crown Castle offers a nice combination of a high yield and a growing dividend.
• Strong cash flows make CCI a strong investment, but valuation is where things look even more compelling.

Today, everything is connected through technology in some shape or form. The need for reliable and fast data has never been more in demand. This greatly benefits the likes of telecom leaders like Verizon Communications ( VZ ), AT&T ( T ), and T-Mobile ( TMUS ).

However, the competition for customers is fierce between those three, as such, I prefer the infrastructure behind these companies. These telecom companies are not much without the likes of a company like Crown Castle Inc. ( CCI ) or its closest competitor American Tower Corporation ( AMT ).

Cell tower real estate investment trusts ("REITs") are great for investors looking for sustainable cash flows and solid dividend yields, and today we will take a closer look at CCI.

Who Is Crown Castle?

Crown Castle is a cell tower REIT with a portfolio that consists of:

• More than 40K cell towers
• Roughly 115K small cells
• Roughly 85K route miles of fiber.

The company's footprint spans across all major U.S. markets. The cell towers are leased out to Verizon, AT&T, and T-Mobile, which provide very steady income streams. As you can imagine, the renewal rates are nearly 100%.

The Growth Story Remains Intact

When it comes to growth for CCI, it is not just coming from one asset class within their portfolio, and that is something that has investors excited.

The continued rollout of 5G, both here in the U.S. as well as globally, impacts many areas of the business. Also, this rollout is still in the early innings, which should continue to fuel growth for the foreseeable future.

When it comes to 5G, the speed is remarkably faster than that of 4G. Take a look at the difference between 3G, 4G, and 5G when it comes to downloading a two-hour movie.

Although speed is a huge advantage, the disadvantage with 5G has to do with how far the data can travel as well as the signal disruption. The range of 5G is reported to be up to 50x less than that of its predecessor and even with that, it is much more sensitive to obstacle penetration. What this means is that buildings, walls, or even terrain present a significant obstacle for 5G signals.

Lack of travel distance and sensitive to obstacles means one thing: the need for MORE cell towers. This is HUGE for CCI and even AMT in the coming years, which is one reason I am bullish on this sector.

Researchers suggest that by 2025, only half of all cellular data communications will be over the 5G network.

Long-Term Growth Equates To A Growing Dividend

Given what you know now about the need for more cell towers and this being a longer term story, all of this ties back to stable and growing cash flows for the company.

Management has made it a point to make the dividend a major focus for the company, especially as growth continues. Management has made it a goal to increase the dividend at an average annual rate of 7-8% moving forward.

CCI currently pays an annual dividend of $6.26 per share which currently equates to a solid dividend yield of 4.3%.

Over the past five years, management has increased the dividend at an average annual rate of 9% and they have increased the dividend for eight consecutive years and counting.

Here is a look at how the dividend has been growing over the years.

Speaking of growth, in Q3 the CCI management team released their Full Year 2022 and 2023 guidance, which calls for the following:

• 10% year over year site rental revenue growth in '22
• 4% site rental revenue growth in '23
• 14% adjusted EBITDA growth in '22
• 3% adjusted EBITDA growth in '23
• 6% AFFO growth in '22
• 4% AFFO growth in '23.

In times when many companies are fearing a recession and a retraction in earnings, CCI continues to plow forward and upward.

Investor Takeaway

Crown Castle is a great REIT to consider for investors looking for a solid total return play. The company has plenty of growth opportunities moving forward combined with a nice 4% yield and a dividend that continues to grow at an 8% clip moving forward.

The valuation also appears quite intriguing as shares of CCI currently trade at 19x next year's AFFO estimates. For comparable purposes, the company has traded closer to 23x AFFO over the past five years.

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