I have built my portfolio by finding attractive companies and then considering how they fit into the bigger picture. While I like American Tower (NYSE: AMT) and have considered buying its stock, I always come back to the same conclusion: I prefer the stocks I already own. Here’s why I think American Tower is a great business but haven’t bought the stock yet.
American Tower is the backbone of the future
The future is increasingly mobile, with a projected compound annual growth rate of 7% for mobile connected devices over the next five years. This growth will be driven by cellular phones and Internet of Things devices. As data consumption on cellular devices rises, wireless networks will handle more data. Data per device is expected to expand by 12.5% annually in the next five years. American Tower is expanding its business worldwide, capitalizing on the growth potential in emerging markets. Each cell tower can be highly profitable, with gross margins of 83% and a return on investment of 24%. However, rising interest rates, a failed data center investment, and cooling capital spending in the telecom space have made investors bearish on American Tower, depressing the stock by around 40% from its 2021 highs.
And yet I still don’t own American Tower
While American Tower has a historical dividend growth rate of 20% over the past decade and a 10% boost in the past year, I don’t own REITs (real estate investment trusts) for rapid dividend growth. I see REITs as foundational income investments with attractive yields and slow appreciation. Compared to other REITs in my portfolio, like Realty Income (NYSE: O) and Federal Realty (NYSE: FRT), which have longer dividend histories, American Tower is a fairly young REIT. Additionally, I am hesitant to add more REITs to my portfolio as I already own several. Diversification is important to me, and adding more REITs would not align with that strategy. I prefer to add more to my existing holdings or replace a current holding with American Tower, but I am happy with what I currently own.
You don’t have to swing at every pitch
Warren Buffett once said that Wall Street throws pitches at you all day long, but there’s nobody calling balls and strikes. You have the choice to swing whenever you want or sit and let the pitches go by. I believe American Tower stock is attractive, but it doesn’t fit into my portfolio at the moment.
*Stock Advisor returns as of September 11, 2023
Reuben Gregg Brewer has positions in Federal Realty Investment Trust and Realty Income. The Motley Fool has positions in and recommends American Tower. The Motley Fool recommends Realty Income. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
