Insights

This Fast-Growing Dividend Stock Has Lofty International Growth Ambitions

American Tower (NYSE: AMT) has grown into one of the world’s biggest real estate investment trusts (REITs). It has built the largest global portfolio of communication sites through a series of acquisitions and new tower developments. In addition, it recently expanded into the U.S. data center segment, further growing its infrastructure platform.  

The infrastructure REIT made clear that its growth days are far from over. That was evident from CEO Tom Bartlett’s comments on the second-quarter conference call.

Going global

Bartlett focused his second-quarter commentary on American Tower’s international business. He noted that the company started expanding outside the U.S. over two decades ago. Today, the REIT’s international portfolio comprises over 170,000 tower sites (more than three-quarters of its 222,000-site global portfolio). While that’s the majority of its portfolio, the company’s international towers contribute 45% of its property revenue and 36% of its property segment operating profit. That leaves lots of upside potential as it increases rents and adds additional tenants to each tower.

American Tower has primarily built its international tower portfolio through a series of acquisitions. For example, recent deals included acquiring Eaton Towers for $1.85 billion in 2019 and purchasing Telxius Towers for $9.4 billion last year. The Eaton deal added 5,500 communications sites in Africa, while Telxius brought 31,000 tower sites in Europe and South America. 

These deals have given the company a platform for additional expansion. American Tower has been able to add more tenants to those towers and build new ones in those countries to support continued network expansions. It has constructed about 40,000 of its international sites over the last 20 years — 22,000 since 2018 alone — while acquiring the rest primarily from mobile carriers. 

These investments have paid big dividends for the REIT. The company has grown its international operating profit at a more than 20% compound annual rate over the last decade, nearly double the profit growth rate of its U.S. and Canadian operations. That’s helped drive mid-teens growth in its AFFO per share while powering more than 20% annual dividend growth since it converted to a REIT.

Towering international growth ahead

American Tower has grand plans to continue expanding its international tower business. CEO Tom Bartlett stated on the second quarter call that: “we’ll continue driving toward our ambition to add another 40,000 to 50,000 sites to our international portfolio over the next several years.” It primarily plans to build these towers because it’s getting exceptional investment returns.

Bartlett then ran through places where it expects to build more towers in the coming years. He stated that this year “we plan to double our previous record and build approximately 400 sites across Europe, and we expect this trend of elevated new build activities to continue.” That’s partly due to the Telxius transaction where the seller and anchor tenant Telefonica committed to leases covering an additional 3,300 new sites in Germany and Brazil through 2025. In addition, it’s benefiting from accelerating activities by mobile carriers to deploy new equipment to roll out their 5G networks. 

Meanwhile, the company is ramping up its tower construction activities in Africa. Bartlett noted that carriers are enhancing their 4G networks in response to “[outsize] growth in mobile data usage.” The CEO stated, “We’ve built over 1,000 sites across Africa in the first half alone, up over 30% compared to the first half of 2021 and nearly double the volumes achieved in the same period in 2020.” The company is also building towers in Brazil, thanks partly to the Telefonica-Telxius deal and across the Asia Pacific region.

In addition to building more towers in its markets, Bartlett noted that the company will “continue to evaluate opportunities to further enhance our scale through the same disciplined lens.” In other words, when the right deal comes along, the company won’t hesitate to make another acquisition to bolster its leading global tower business. That would enhance its already strong international growth prospects, which have helped power American Tower’s ability to deliver fast-paced FFO and dividend growth over the last decade.

Plenty of power to keep growing

American Tower isn’t your average dividend stock. It offers a compelling dividend yield — currently, 2.1% compared to 1.6% from an S&P 500 index fund — and attractive growth prospects. That’s mainly due to its international tower operations, which are growing faster than its U.S. business. With grand ambitions to continue growing that business, American Tower should be able to deliver strong earnings and dividend growth in the coming years. That should help it produce attractive total returns, making it a great dividend stock to buy for the long term.

Matthew DiLallo has positions in American Tower. The Motley Fool has positions in and recommends American Tower. The Motley Fool has a disclosure policy.

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