Market Commentary: 1 Dividend Stock To Hold Forever

American Tower Corporation (NYSE:AMT) might not be a household name but it’s one of the largest global REITs, operating over 200,000 communications sites across continents.

Is this stock worth parking your money in for the long-term, both for its dividend and future growth potential?

Key Points

• American Tower has diversified its operations internationally, with strong footholds in markets like India, Brazil, and Europe, which in turn creates diverse and stable revenue streams that reduce the impact of economic downturns.
• It has a solid dividend history, offering an annual yield of around 3.9% but there are concerns about its high payout ratio of 290%.
• Despite high debt levels and potential technological disruptions from satellite-based communication systems, American Tower has a resilient business model that should stand the test of time.

Bright Prospects in a Digital World

To get you up to speed on what the company does, American Tower’s primary business is in leasing space on its communications sites to wireless carriers, government agencies, and broadband data providers. As the demand for high-speed internet and 5G technologies soars, American Tower’s role becomes increasingly vital.

Whether it’s the Internet of Things (IoT), autonomous vehicles, or smart cities, all of these innovations hinge on robust, ubiquitous connectivity. With each technology leap forward, the need for more tower space grows, placing American Tower in an advantageous position.

Data supports this bullish sentiment. According to Allied Market Research, the global telecom telecom business is set to soar to $2.5 trillion by 2031. And GrandViewResearch forecasts 5% annual growth through 2028 for the tower business.

Pluses and Minuses

American Tower isn’t just focused on saturating the U.S. market; it has set its sights globally and already has a strong foothold in international markets like India, Brazil, and various European countries.

This broad portfolio diversification provides it with a cushion against economic downturns in any particular region. Indeed, the predicability of its revenues led the firm to issue dividends for the first time in 2012, and it has increased its dividend every year since.

The annual dividend yield stands at around 3.9%, but the payout ratio is 290%. It’s that latter metric which is concerning because it puts into question the sustainability of the dividend payout.

Another potential concern stems from its high level of debt, amounting to over $47 billion as of the end of last quarter while holding “just” $2 billion in cash.

Perhaps the biggest threat comes from newer technologies that are gaining traction, such as satellite-based communication. Some naysayers speculate they could disrupt the traditional tower-leasing model but we think that’s too pessimistic. While it’s possible it creates pricing pressure, it’s not going away in our view as multiple avenues to staying online are critical to infrastructure; together they create redundancy which all large corporations and governments need.

Time To Buy This Tower of Strength?

Putting it all together, American Tower appears to be a compelling choice for long-term investors. Its solid dividend history is complemented by a business model poised to capitalize on the insatiable global demand for connectivity.

While it does have higher levels of debt than we would like to see and faces competition from technological disruptions, its diversified revenue streams and strong market positioning should stand the test of time and reward long-term holders.