American Tower's dividend growth slowed down

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American Tower's dividend growth slowed down

I've owned shares of American Tower since before the data infrastructure company converted into a real estate investment trust over a decade ago. The investment has been well-received over the years. The company has introduced a dividend, while also generating a favorable stock-price appreciation.

While I have added to my position several times over the years, I have been particularly heavy buyer this year. My recent buying binge has been a huge blow, and I'm looking forward to my next purchase binge.

Since becoming a REIT in 2012, American Tower has increased its dividend annually. It's grown that salary briskly over the years, delivering more than 20% compound annual growth from its initial rate.

While the company's growth has slowed in recent years, American Tower's dividend growth has remained robust. In 2022, its pay rose to 125%.

This year's dividend growth has gotten even more subdued. American Tower's dividend didn't increase in the first quarter, marking the first time it didn't give investors a quarterly raise since it started paying dividends. Meanwhile, the second quarter's increase was only $0.01 per share above the first quarter's level.

However, the company's dividend growth rate has slowed significantly in the past few months. The third quarter of American Tower was recently declared a dividend payment of 3.2% above the second quarter level. That accelerated upward trend should continue, given American Tower's guidance that it will pay $3 billion in dividends in 2023, representing 10% year-over-year growth per share.

Although American Tower's dividend has risen a lot this year, its stock price has gone in the opposite direction. This has driven up its dividend yield while lowering its valuation.

The REIT's shares have decreased by more than 20 percent this year and currently trade at less than $165 apiece. American Tower's dividend yield has been 4%, a historically high level for the company, which has typically traded at a dividend yield closer to 2%. The S&P 500's dividend yield is more than double that of the other 500 stocks.

In a statement, American Tower expects its adjusted profits from operations to be between $9.61 and $9.79 per share this year. That puts its price-to-FFO ratio at around 17x. What's well below the over 20x FFO multiple American Tower has typically fetched.

The impact on American Tower's stock price has been influenced by the headwinds, which have been a key factor in its growth. The REIT anticipates that this year's adjusted FFO will drop by less than 1%, driven by higher interest rates, a customer merger, and other factors.

The strong underlying performance of the company's portfolio is evidenced by these headwinds. The demand for space in its towers and data centers remains strong. In the first quarter of this year, that drove over 6% growth in organic tenant billings, compared to the same period last year.

The tailwinds that are driving this expansion are still firmly in place. That's why the REIT is investing a lot of money to create more infrastructure to capitalize on these drivers. With $1.5 billion, it is investing more than $1 million to build additional international towers and expand its U.S. data center network.

The combined increased demand for its infrastructure should drive a reacceleration in adjusted FFO per-share growth as its other headwinds fade. The REIT is able to continue increasing its dividend at a healthy rate.

This year, American Tower has become a more attractive investment option. Although the company's dividend continues to increase, shares have seen a drop in value. Because of that, it trades at a higher dividend yield and a lower valuation.

While it's facing a few near-term challenges, the long-term growth thesis remains intact. I will still buy shares as I have cash to invest, he said.