Crown Castle: Shares Remain A Buy Amid Bold Guidance, Double-Digit Dividend Growth

Summary

• Benefiting from uninterrupted tower rental revenues, cell-tower companies, including Crown Castle, have been able to generate consistent cash flows, with little to no correlation to the adverse effects of COVID-19.
• Management has provided bold guidance expectations over the next couple of years, showcasing a double-digit growth in FFO/share growth and EBITDA margin expansion.
• Despite our prudent growth estimates, investors are quite likely to see double-digit annualized total returns in the medium term, including competent dividend growth and a well-covered payout ratio.

As you have probably read in various REIT-related articles here on Seeking Alpha and likely already know, cell-towers have been one of the least affected and most resilient real estate areas during the ongoing pandemic. One of our favorite stocks in the sector is Crown Castle (NYSE:CCI), which we have previously classified as a must-have company for dividend-growth investors.

A few days ago, the company reported its Q3 results, posting another quarter of satisfactory performance, reaffirming our bullish thesis. Despite robust earnings and management's raised guidance, shares have remained relatively flat lately while slightly dipping post-earnings. As a result, we believe that Crown Castle remains a compelling buy for dividend growth investors, offering satisfactory returns over the medium-term.

Source: Google Finance

Discussing earnings

Benefiting from uninterrupted tower rental revenues, cell-tower companies, including Crown Castle, have been able to generate consistent cash flows, with little to no correlation to the adverse effects of COVID-19. The company's recent quarter further displayed this case, recording rental revenue growth of 4%, to $1.34 billion. The increase comprised about 9.1% from new leasing activity and contractually locked escalations, while suffering only around 3.6% from tenant non-renewals, lifting the figure to an all-time quarterly high.

Due to enjoying a relatively more predictable outlook than the rest o of its sector, management is confident enough to guide FY2021. The current and next financial year's Rental revenues are expected to be $5.3 billion and $5.5 billion, respectively, as we have illustrated in the graph below.

The company's EBITDA margin is also expected to expand, likely due to increased average tenant per tower, kicking in economies of scale. As a result, management has projected up to FY2021's FFO/share of $6.70, implying a double-digit growth in the short term. This is particularly exciting since this growth rate beats management's very own

Analyst’s Disclosure:I am/we are long CCI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.