5G-related REIT, Crown Castle International Corp. (NYSE:CCI), has appreciated 36% over the past year
Capital Ideas Media | July 27, 2020 | SmallCapPower: We always love hearing from our subscribers. During the past week, we had a few requests for 5G investing ideas. We too have much interest in 5G and the explosive growth that many experts have predicted will occur in this space.
(Originally published on Capital Ideas Media on June 16, 2020)
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So, what’s the big deal about 5G wireless technology? Well, it has download speeds up to 20 times faster than the current 4G technology. 5G also supports 10 times more devices per square kilometre. In addition, the partnership between 5G and the Internet of Things (IoT), which is a network of Internet-connected devices that collect and exchange data, could bring about a surge in smart technology.
Some examples of this: 5G would allow self-driving vehicles to make split-second decisions, presumably making them safer on the roads. Also, these ‘smarter’ vehicles would be able to connect to buildings, street lights, and other vehicles, potentially improving traffic flow.
And in manufacturing, analytics and advanced robotics in ‘smart’ factories could streamline manufacturing processes, leading to efficiency gains and cost savings.
For investors, the current global market for 5G is valued at an estimated $5.5 billion in 2020. That figure is expected to grow to $668 billion by 2026, a compound annual growth rate of 122% according to Allied Market Research.
Crown Castle International Corp. (NYSE:CCI) is a stock we’ve had on our radars for the past seven months. Since then, the stock has appreciated by 22% (the 3% dividend yield doesn’t hurt either).
Crown Castle is the United States’ biggest owner of cellphone towers, owning more than 40,000 of these structures and leasing them to wireless giants such as Verizon and AT&T. The Company is structured as a REIT, paying out at least 90% of its taxable income to shareholders.
Think of Crown Castle as a ‘landlord’ collecting more and more rent due to 5G growth in the U.S. As carriers build out the networks and launch more 5G services, more cell towers will be required. As a result, CCI will be able to charge higher rates because of the power and processing required with 5G.
During the past few years, Crown Castle has also acquired several fiber/small-cell companies to become the largest player in this space. And, while macro towers will form the core of 5G networks in the rural and semi-urban areas, small cells and fiber is expected to dominate the urban market and the ‘last mile’ of wireless networks.
5G networks require many small cell sites (each about two square feet) to be built in close proximity to one another to improve network density in urban areas. Thus, consumers’ rising demand for more data bandwidth is driving cellular providers to increase the amount of space they rent on Crown Castle’s towers for more equipment.
CCI’s customers are locked into long-term contracts (at least five years) with escalation clauses that raise rents over the terms of the leases.
All of which has enabled Crown Castle to hike its annual dividend by about 8.1% per year from 2015 to 2019. CCI stock is currently yielding nearly 3%.
Oppenheimer upgraded Crown Castle International stock recently to “Outperform” from “Market Perform,” saying despite a hit to network builds from COVID-19 measures the secular drivers of industry growth are still in place.
Analyst Timothy Horan cited several catalysts for CCI stock, including a rebound in tower activity from T-Mobile along with strong spending from Verizon; the buildout of a new wireless network from Dish Network; rural fixed wireless growth; and potential demand from spectrum auctions in the second half of the year.
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