American Tower Corporation (AMT - Free Report) recently rewarded its investors with 7.1% sequential hike in quarterly dividends on the company’s common shares. Specifically, the company hiked its dividend to 90 cents from the 84 cents paid earlier. The raised dividend is scheduled to be paid on Apr 26, to shareholders on record as of Apr 11, 2019.
Based on the new rate, the annualized dividend rate comes to $3.6 per share, up from the prior annual rate of $3.36 per share. This indicates an annualized yield of 2%, considering American Tower’s closing price of $181.75 on Mar 7.
Can American Tower Maintain its Payout?
American Tower has a disciplined capital-allocation strategy and has consistently increased its dividend rate over the past four quarters, thereby raising dividends by around 20% in 2018. Looking at the company’s funds from operations (FFO) growth and payout ratio, it will likely be able to sustain/maintain the hiked dividend.
Its consolidated adjusted funds from operations (AFFO) per share witnessed a CAGR of 16% over the last 10 years (ended 2018). Moreover, its long-term (next five years) estimated AFFO growth rate of 14% promises rewards for investors over the long run. Further, its current payout ratio is nearly 42.6%.
Notably,increased use of mobile data continues to fuel demand for space on the company’s telecom towers. This enabled American Tower to witness splendid leasing activity and organic tenant billings growth in the fourth quarter. With higher investments in 4G and the upcoming 5G technology, wireless carriers will likely densify their network.
Hence, the company is strengthening its portfolio and focusing on innovation to capture underlying opportunities. This will deliver strong operational efficiency and complement its long-term growth strategy.
Nevertheless, poor fundamentals of the company might lead to dividend cuts. The amount of debt assumed by a company influences dividend growth. Hence, American Tower’s high level of debt raises concerns over sustainability of the current dividend level. It is a highly-leveraged company with a debt/equity ratio of 3.12 compared with the industry’s average of 0.83.
We believe such disbursements highlight the company’s operational strength and commitment toward rewarding its shareholders handsomely. The hike reflects the company’s ability to generate solid cash flow growth through its operating platform and high-quality portfolio.
Lastly, as investors prefer an income-generating stock, solid dividend payouts are arguably the biggest enticement for REIT investors. Needless to say, investors are always on the lookout for companies with a track record of consistent and incremental dividend payments to put their money on.
Shares of this Zacks Rank #3 (Hold) company have rallied 9%, outperforming the industry’s growth of 3.2% over the past three months.
Better-ranked stocks from the REIT space are Terreno Realty Corporation (TRNO - Free Report) , Alexandria Real Estate Equities (ARE - Free Report) and Boston Properties, Inc. (BXP - Free Report) . All three stocks carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Terreno Realty’s FFO per share estimates for first-quarter 2019 have been revised marginally upward to 35 cents in a month’s time. Further, it has a long-term growth rate of 8.40%.
Alexandria Real Estate Equities’ Zacks Consensus Estimate for first-quarter 2019 FFO per share was marginally revised upward to $1.67 over the past week. Also, it has a long-term growth rate of 4.40%.
Boston Properties’ FFO per share estimates for the ongoing quarter have been revised marginally north to $1.65 in a month’s time. Additionally, it has a long-term growth rate of 6.20%.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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