Crown Castle International (CCI, Financial) is a smart investment that stock market watchers should consider for their portfolio. The company has significantly increased its annual dividend to $3.28 per share from $1.40 a share last year. But, this is not the only reason why this stock could be a good pick. We will take a closer look at Crown's prospects in this article, and see why it can be a good investment.
Focusing on the right areas
Crown is focused on aligning the shareholder return with its business fundamentals. Going forward, its recurring cash flow from the business is expected to be distributed in the form of dividends. Future dividends will gain from the forecasted growth from the combined factors of increasing the dividend with time, outer acquisitions increasing the early cost of capital, leveraging its active portfolios and contracted escalators The AFFO organic growth rate in the next five years are believed to be in 6-7% range, with half of it presently contracted through escalators on its contracts for tenant lease.
These impressive payouts showcase and deliver the $22 billion of superior quality prospective revenues in the long term, mainly with the four key U.S. wireless carriers and its focus on delivering continued return on invested capital to its shareholders. These carriers are believed to have an overall market capitalization of about $430 billion and annual operating cash flows of nearly $70 billion.
A dividend yield of about 4%, combined with the estimated long-term organic growth in 6-7% range, produces net returns in the 10-11% range.
Delivering shareholder value
Crown is keen on maximizing the long-term value for its shareholders coupled with implementing a strategic capital allocation strategy. Lately, Crown is focused on allocating a greater percentage of its AFFO in dividends form and keeps a weaker payout with retaining greater flexibility for opportunistic share purchases.
Crown has enhanced its 2014 AFFO outlook to $4.20 a share, an increase of 14% over 2013. This growth is expected to be gained through like contributions from the organic site rental margins growth and growth in its network services business.
Crown has declared the outlook for 2015, including the full year growth of 4% for AFFO per share. The company’s growth outlook is primarily affected by the nonrenewals from the last year of the Sprint iDEN decommissioning of worth $65 million, coupled with about $40 million from network rationalization of Clearwire legacy, Leap and Metro PCS networks. Still, the ongoing activity of gross leasing is enabling impressive organic growth in double-digits prior to the effect of these network rationalizations.
The company’s solid growth estimates are propelled by lasting fundamentals of the industry, and 2014 is becoming a year of ongoing impressive activity of gross leasing. Going forward into 2015, Crown expects healthy leasing activity from fresh tenant installations and innovative amendments to current leases to stay solid and comparable to its 2014 expectations with all four key wireless carriers keen on upgrading their networks for meeting the customer demand. Therefore, Crown has intentionally focused its capital and energy in the U.S. as the U.S. market is believed to provide excellent risk-adjusted returns.
The U.S. market is particularly solid primarily due to its huge size and attractiveness over several other markets. Moreover, U.S. carriers are generating higher returns on their invested capital significantly higher scale, above several other geographies. This comparatively higher ARPU is enabled by the overwhelming growth in mobile data consumption by U.S. subscribers. Crown must invest significantly to enhance the network quality and expand capacity with functionality addition; U.S. carriers are anticipated to invest billions of dollars in the forthcoming broadcast and AWS spectrum auctions.
The commitment of wireless carriers to constantly differentiate themselves in terms of network quality strengthens Crown’s conviction for long-term growth of its business.
Crown is a market leader in the U.S., and has approximately 40,000 towers and an extremely active and rising small cell prospect, now at 14,000 nodes. It is very well-positioned to gain from these expanding macro trends.
Conclusion
Crown Castle is positioned to deliver growth in the long run. The company counts key telecom carriers as clients, and also has a strong dividend. Considering these facts, the stock looks like a good long-term buy.