Finding value in this market is getting harder and harder, but for those who seek alternative investments such as real estate investment trust it’s easier. During the last 3 months, the 10-year treasury yield has increased from 2.40% to 2.74%. Since bonds are now more attractive for risk-averse investors, sectors such as utilities, consumer staples and REITs have dropped significantly. As of January 2018, the total return for the Vanguard REIT index was -4.3% and the relative return to the S&P500 was -9.9%. In the 1-year perspective, REITs are only up 0.6%, giving a negative total return compared to the S&P500 at 25.7%.
The stock prices for REITs peaked in June 2016 and hasn’t recovered since then. Today, many high-quality REITs are trading at fair prices. But sometimes it’s not enough for a company to be high quality. It also need to have a forward growth-path to maintain or increase its earnings. Therefore, today we will present a digital REIT with favorable long-term outlooks which highly benefits from the rising data-usage without forcing investors to have single exposure to a specific technology stock.
American Tower Corporation REIT (NYSE: AMT)
American Tower is one of the largest owners of multi-tenant communication towers in the world. Think satellite towers, solutions and services to deploy and support wireless networks. The company owns or controls 30% of the broadcast towers in the U.S and worldwide. With a market cap close to $61.50 billion and a revenue at $6.5 billion AMT isn’t a company you should neglect.
There is so much to like about American Tower Corporation. First, AMT’S revenue grew 7.8% during the financial crisis, meaning that the company is highly recession resistant. Second, the free cash flow per share (which is the main tool a company can use to deploy capital to grow) has been growing at a steady pace. The return on equity has been solid at two digits for many years. The return on invested capital (ROIC), which is our way of measuring how professional and capable the management is, has been stable at 8% for more than 10 years. The operating margin is also solid, being close to 40% for a decade. Maybe not so strange since 98% of American Tower Corporation’s revenue is based upon recurring revenue.
What about the stock price and the dividend? Has the company been good to its shareholders? Without doubts. On a 1-month basis, AMT has returned 7.9% and on a 12-months basis AMT’s has returned 23%. The yield is maybe not instantly something income investors smile for, being quite low at 2.06%. However, the dividend compounded annual growth rate has been very high at 15.21% for 1 year, 22.30% for 3 years and 23% for a 5-year perspective.
American Tower Corporation is a solid compounding machine that should be on any investors watch list.
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