Crown Castle International Corp (CCI): A High Quality REIT With Healthy Dividend Growth Prospects

Dividend Analysis: Crown Castle

We analyze 25+ years of dividend data and 10+ years of fundamental data to understand the safety and growth prospects of a dividend. Crown Castle’s long-term dividend and fundamental data charts can all be seen by clicking here.

Dividend Safety Score

Our Safety Score answers the question, “Is the current dividend payment safe?” We look at factors such as current and historical EPS and FCF payout ratios, debt levels, free cash flow generation, industry cyclicality, ROIC trends, and more. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.

Crown Castle’s Dividend Safety Score of 62 suggests that the company’s current dividend payment is pretty safe.

The dividend payout ratio is one of the most important financial ratios for dividend investing because it shows how much of a company’s earnings are being consumed to pay the dividend.

Net income is most commonly used to compute a company’s payout ratio, but REITs face several complications.

REITs own a lot of property, so they record substantial non-cash depreciation charges every year, which reduces their reported net income. However, the value of real estate usually rises over time, creating a mismatch between accounting and reality.

For this reason and others, real estate businesses use a supplemental measure called “adjusted funds from operation” (AFFO) instead of net income to provide a better sense of their real dividend payout ratios.

AFFO measures cash flow by removing the non-cash impact of real estate depreciation along with several other items to give a more accurate look at a company’s operating performance.

For fiscal year 2016, Crown Castle expects AFFO per share of $4.70. With annual dividend payouts of $3.54 per share, the company’s forward-looking payout ratio stands at 75%.

I generally prefer to invest in companies with a lower payout ratio but will make exceptions for businesses with extremely steady cash flows.

Crown Castle International Corp (NYSE:CCI) seems to fit this profile. The company generates consistent cash flow thanks to its long-term leases, mission-critical services, large base of recurring revenue, and high renewal rate.

As long as the company continues to retain its tenants and continue collecting monthly rent payments, the relatively high payout ratio shouldn’t be an issue.

Another one of the most important factors impacting dividend safety is a company’s performance during the last recession. As seen below, Crown Castle’s revenue continued growing at a double-digit clip throughout the downturn.

Source: Simply Safe Dividends