High return often translates into high risk. This means that income investors should exercise caution when considering which dividend-paying stocks to buy.
However, the need to be cautious doesn’t mean you should avoid high-yielding dividend stocks altogether. Some of them are actually not that risky.
It comes to mind that income investors will probably particularly like it. Buy $5,000 of High Yield Dividend Stocks Crown Castle (ICC 0.10%) would be a brilliant decision right now.
A massive company
Crown Castle operates more than 40,000 telecommunications towers across the United States. It has around 120,000 small cells which increase capacity in high data network traffic areas. Additionally, the company has approximately 85,000 miles of fiber that carries voice and data from its towers and small cells to homes and businesses.
But Crown Castle is not a telecommunications company in the traditional sense. Instead, it is organized as a real estate investment trust (REITs). The company leases its assets to telecommunications companies. Three telecom giants… AT&T, T-MobileAnd Verizon – accounted for nearly 75% of Crown Castle’s site rental revenue last year.
Thanks to contract escalators, Crown Castle’s revenue is poised to grow, regardless of what’s happening in the telecommunications industry. However, the REIT should also benefit from a strong tailwind. Mobile data usage has exploded in the US, increasing 108 times between 2010 and 2020. The transition to 5G (and potentially 6G in the future) is expected to serve as a growth driver for Crown Castle for years to come .
About this dividend
As a REIT, Crown Castle must return at least 90% of its income to shareholders in the form of dividends to avoid paying federal taxes. The company’s dividend yield currently exceeds 5%.
Since 2016, Crown Castle has increased its dividend by a compound annual growth rate of 9%. The company expects to achieve an average dividend increase of between 7% and 8% each year over the long term.
Investors should expect somewhat lower dividend increases in 2024 and 2025. Crown Castle is feeling the impact of rising interest rates and some lease cancellations resulting from the merger of T-Mobile and Sprint. However, the company is still looking to achieve its long-term dividend increase target, with growth is accelerating after the next two years.
Crown Castle should have no problem keeping dividends flowing. The company has a superior balance sheet. The telecommunications assets it leases are mission critical. Above all, Crown Castle should have solid growth opportunities in the small cell market.
There are two negatives for Crown Castle that income investors should be aware of. I mentioned one before – slower growth due to rising interest rates and Sprint cancellations. The other is stock valuation, with shares trading at 34.6 times forward earnings. However, I don’t think either of these issues is too much of a problem.
First, Crown Castle fully expects to return to stronger growth. General trends in mobile data usage support the company’s optimism, in my view.
It’s important to note that Crown Castle isn’t suffering that much, even with its current challenges. First-quarter 2023 revenue was up 3% year-over-year, with adjusted funds from operations (AFFO) up 2%. The REIT continues to expect AFFO growth for the full year of 2023.
Second, while equity valuations are high relative to the S&P500, it is low compared to Crown Castle’s historic levels. I won’t say the stock is cheap – it’s not. However, I don’t see the evaluation as an obstacle.
A brilliant gesture
My view is that Crown Castle presents an attractive opportunity for income investors. You can lock in a particularly juicy dividend. The company’s underlying business remains strong. Worries about its near-term challenges are more than priced into the stock price. Therefore, buying shares of this high yielding dividend stock could really be a brilliant move.
Keith Speights has no position in the stocks mentioned. The Motley Fool holds positions and recommends Crown Castle. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.