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

Economic weakness did not significantly impact Crown Castle’s recurring revenue, and demand for wireless services continued to grow. Site rental revenues increased at a mid-single digit clip throughout the downturn, underscoring its resiliency.

Despite stable fundamentals, Crown Castle’s stock plunged by nearly 60% in 2008, significantly underperforming the S&P 500.

In 2008, the company had around $240 million in cash on hand compared to total book debt in excess of $6 billion. As credit markets froze up, many highly leveraged companies such as Crown Castle were smoked.

A similar situation seems unlikely in today’s age of rock-bottom interest rates and easy money, but the company’s history is worth being aware of.

Besides stable business results across many different economic environments, Crown Castle’s excellent free cash flow generation boosts its Dividend Safety Score.

As seen below, Crown Castle has generated positive, growing free cash flow over the last decade. Most of the company’s costs are fixed, which allows it to generate high incremental cash flows when it adds new tenants to existing towers.

Maintaining its wireless infrastructure is also relatively inexpensive. The company estimates that sustaining capital expenditures are typically just 2-3% of net revenues. If another downturn were to happen, Crown Castle could easily ramp up free cash flow by cutting out discretionary spending.

Source: Simply Safe Dividends

As I mentioned earlier, Crown Castle does maintain a high debt load. Debt can be good or bad depending on the type of business (e.g. cyclical versus stable) and the amount of leverage used.

Since Crown Castle generates extremely stable free cash flow and owns a good portion of its land and properties, it can reasonably afford to maintain more debt than the average firm.

The figure below shows that Crown Castle currently holds $305 million in cash compared to a debt load of nearly $12 billion.

The company is committed to improving its balance sheet and maintains an investment grade credit rating from the major agencies. It also has around $2 billion available to use from its credit revolver, alleviating some of my leverage concerns.

Source: Simply Safe Dividends

Overall, Crown Castle’s dividend payment looks safe. The company’s payout ratio is reasonable, its free cash flow generation is excellent, and the services provided by Crown Castle are at least somewhat recession-resistant. The balance sheet could be in better shape, but the company’s reliable cash generation reduces some of this risk.