Crown Castle owns over 40,000 cell phone towers and more than 80,000 miles of fiber optic cable, leasing them to major telecom providers like T-Mobile (34% of sales), AT&T (21%), and Verizon (18%).
With its essential infrastructure supporting telecom tenants' coast-to-coast network connectivity, Crown Castle has generated a reliable cash flow stream over time.
Source: Simply Safe Dividends
However, recent headwinds have tempered Crown Castle's earnings outlook, including lease cancellations with Sprint (now part of T-Mobile), rising interest rates, and reduced 5G spending by major carriers.
The 2020 merger of T-Mobile and Sprint has allowed the combined company to cut costs by letting some of Sprint's tower leases expire or be canceled while transitioning legacy Sprint subscribers onto T-Mobile's network.
The rationalization of Sprint's leases resulted in approximately $165 million in lost sales this year, with an additional $200 million expected to fall off in 2025, totaling just over 5% of last year's revenue.
Higher borrowing rates are also squeezing profits, leading to a spike of around $150 million in the firm's interest expense this year, despite most of the REIT's debt carrying fixed rates.
Furthermore, network carriers are expected to slow their 5G spending over the next few years – a trend that could accelerate if the lead-covered cable issue AT&T and Verizon face intensifies.
Overall, Crown Castle's growth outlook has stalled, and investors have fled the stock, driving the dividend yield to historic highs of almost 6%.
While growth is expected to slow, the REIT's essential network assets are forecasted to generate stable cash flow thanks to their long-term leases and built-in rent escalators, maintaining the firm's payout ratio under 90%.
Source: Simply Safe Dividends
And the high costs and zoning issues associated with building network infrastructure should deter competitors, ensuring strong utilization and leasing of Crown Castle's assets.
Recognizing the ongoing cushion provided by the firm's reasonable payout ratio, a BBB rated balance sheet, and the stable cash flow generated from long-duration leases with creditworthy tenants, we are reaffirming Crown Castle's Safe Dividend Safety Score.
Although payout coverage should remain healthy, dividend growth seems likely to slow to a crawl the next couple of years as the high-growth phase of 5G expansion ends.
We will keep monitoring Crown Castle, providing updates as needed.
