Dividend Growth Score
Our Growth Score answers the question, “How fast is the dividend likely to grow?” It considers many of the same fundamental factors as the Safety Score but places more weight on growth-centric metrics like sales and earnings growth and payout ratios. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.
Crown Castle’s Dividend Growth Score of 50 suggests that the company’s dividend growth potential is average.
The company began paying a dividend in early 2014 and raised its quarterly payout from 35 cents per share to 82 cents at the end of 2014.
Most recently, management increased Crown Castle’s dividend by 8.5% at the end of 2015, raising it from 82 cents per share to 89 cents.
Source: Simply Safe Dividends
The company targets 6-7% long-term annual growth in dividends per share going forward, which is similar to the S&P 500’s historical dividend growth rate.
Since REITs are required to pay out at least 90% of their taxable income as a dividend and are often capital-intensive businesses, their dividend growth rates are usually low but consistent.
Crown Castle scores better for Dividend Growth than many other REITs because much of its future growth requires little capital (e.g. adding additional tenants to existing towers; annual price escalators).
The company’s reasonable AFFO payout ratio (75%) is also supportive of decent dividend growth, especially considering the low amount of sustaining capital expenditures required by the business (i.e. if Crown Castle cut back on growth investments, its AFFO payout ratio would drop and provide even more room for dividend increases).
While the company is too young to be considered a blue-chip dividend stock, it’s dividend growth profile over the next few years looks healthy.
Valuation
Crown Castle’s stock trades at 19.7 times forward AFFO per share guidance and offers a dividend yield of 3.8%.
If AFFO per share grows at management’s targeted rate of 6-7% per year, the stock appears to offer annual total return potential of 10-11%.
The stock’s current valuation seems reasonable considering the company’s stability, but I’d prefer to own the stock at a somewhat lower cash flow multiple for a greater margin of safety.
Conclusion
The investment case for Crown Castle International Corp (NYSE:CCI) over the next five years is very interesting.
As demand for data and wireless connectivity continues to grow, Crown Castle’s wireless infrastructure should become even more valuable.
The company has room to add more tenants to its existing towers at very high incremental margins and will continue to enjoy annual price increases across its portfolio of leases.
These two factors should help earnings and dividends continue to grow at a mid-single digit clip.
Crown Castle looks like an interesting business for dividend growth investors to keep an eye on, especially if the stock sees a pullback.
Disclosure: None
