American Tower Is a Excellent Enterprise. Here’s Why I Really don’t Individual the Inventory.

I have crafted my portfolio from the base up, by first striving to come across appealing companies and then worrying about how they in shape into the more substantial photograph. But now that I have acquired a few dozen investments, new stocks have to contend with previous holdings for hard cash. I like American Tower (AMT -1.70%) and have thought of shopping for it many instances, but each and every time I appear at it, I end up at the identical summary: I like what I now very own far more. Here is why I consider American Tower is a excellent organization but even now have not bought the inventory.

American Tower is the spine of the upcoming

I had a rotary cellular phone growing up. Some folks will not likely even know what that is. It was a large update when my household purchased its to start with cordless cellular phone (not cellular, just cordless). For me, the thought that we can carry a cellphone in our pockets and make calls with wristwatches is the things of Dick Tracy comics. But it is pretty obvious that the foreseeable future will ever more be cellular.

Three people watching an online video stream of their favorite sport on a mobile device.

Image supply: Getty Visuals.

To put some numbers on that, American Tower expects cell linked equipment to raise at a compound annual level of 7% about the subsequent 5 decades. That must be driven by slow expansion in cellular telephones and a quick proliferation of Online of Items gadgets. This progress, plus the rising intake of media on cellular units, is heading to drastically maximize the amount of money of info that traverses wireless networks. Knowledge for each system is projected to extend 12.5% a yr more than the upcoming 5 yrs. 

And that’s just the produced and mainly saturated U.S. market place. Emerging marketplaces have the possible to grow even much more promptly, which is why American Tower is increasing its small business around the world. Every cell tower, in the meantime, can be really lucrative for the authentic estate financial investment believe in (REIT). A tower with 3 tenants, which is not unusual, can have a gross margin of 83% and a return on investment of 24%. So the foreseeable future seems to be like it could be relatively dazzling.

AMT Chart
AMT information by YCharts.

In the meantime, desire prices are increasing, placing pressure on yield investments like REITs. Buyers are a bit miffed that American Tower manufactured a significant investment decision in details facilities that has not panned out as expected. And funds investing in the telecom room is cooling following a huge press to go to 5G. Traders are bearish on American Tower these days, pushing the stock down about 40% from its 2021 highs. The produce is near its maximum stages in history at 3.5%.

And yet I still don’t individual American Tower

I genuinely do like the story at the rear of American Tower, but it is most correct for traders centered on dividend advancement. Which is backed up by a historic dividend growth level of all over 20% in excess of the previous ten years. Even the 10% strengthen in excess of the past year is however rather high. 

The challenge for me is that I will not very own REITs for speedy dividend advancement. I own REITs with the expectation that they will give me with attractive yields and sluggish appreciation. I see them as a foundational cash flow financial commitment. The other REITs I possess, like Realty Earnings (NYSE: O) and Federal Realty (NYSE: FRT), keep track of far better with my anticipations for a REIT investment. And they have a lot for a longer time dividend histories compared to American Tower, which is nonetheless a relatively youthful REIT.

You can find a person far more cause. I am inclined to make exceptions for companies that I feel are attractive. American Tower is appealing, in my eyes. But I by now possess a number of other REITs. With a 50 percent dozen or so in my portfolio, I am unwilling to increase extra REITs. 

VNQ Chart
VNQ facts by YCharts.

The chance of getting far too considerably exposure to a person sector is on apparent display nowadays, provided the impact climbing premiums have had on virtually all REITs (the average REIT is down all-around 30% due to the fact the begin of 2022). I’m a admirer of diversification, so incorporating extra REITs to my portfolio would be counterproductive. My choice is to simply incorporate far more to what I by now have. Normally, I would want to swap a present holding with American Tower. Apart from, as observed, I’m very fond of what I currently own.

You don’t have to swing at just about every pitch

Warren Buffett has an exciting stating. To paraphrase, Wall Road throws pitches to you all day prolonged, but you can find no one contacting balls and strikes. You can swing any time you want, or just sit and let the pitches go by. I like American Tower stock, but it just will not healthy into my portfolio suitable now.

Reuben Gregg Brewer has positions in Federal Realty Investment Have faith in and Realty Earnings. The Motley Fool has positions in and endorses American Tower. The Motley Fool suggests Realty Income. The Motley Idiot has a disclosure plan.