The board of directors of American Tower Corporation (AMT) – a leading global wireless communications tower operator – has approved a hike of 6.3% in the company’s quarterly cash dividend to 34 cents per share of its common stock. The increased dividend will be paid on July 16, 2014 to shareholders of record at the close of business on June 17, 2014.
We believe the dividend increment is supported by American Tower’s blockbuster financial numbers for the first quarter of 2014, which came on the back increased deployment of 3G/4G networks and aggressive buying of towers in emerging markets. At the end of first-quarter 2014, American Tower generated $476.6 million in cash from operations, against $394 million in the prior-year quarter.
The company benefits from the increasing numbers of mobile subscribers which has significantly boosted the wireless tower industry. Moreover, future financials are likely to be propelled by strong demand for wireless voice, broadband wireless data and video networks, which require more tower space.
Next-generation 4G LTE networks coupled with increased usage of smartphones and tablets should also create impressive demand for tower leasing. The Master Lease Agreement (MLA) for 9 years signed with Sprint Nextel Corp. is expected to boost top-line growth going ahead. American Tower generates most of its revenues from long-term (typically 5-10 years) tower leases with major wireless carriers.
In addition, the company provides on-site maintenance and servicing of antennas, amplifiers and base station equipment. Since moving equipment from one tower to another is cumbersome, carriers normally renew these contracts upon expiration. This generates a strong long-term lease up-cycle for the company.
American Tower has practiced dividend hikes over the last nine quarters. The dividend yield based on increased dividend and the last trading price is 1.5%. In this regard, Crown Castle International Corp. (CCI), The GEO Group, Inc. (GEO) and W. P. Carey Inc. (WPC) pose competitive threat to American Tower. Recently, these three companies paid quarterly dividends of 35 cents, 57 cents and 89.5 cents with dividend yields of 1.8%, 6.8% and 5.7%, respectively.
American Tower currently has a Zacks Rank #3 (Hold).
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