What are we looking for?
Sustainable dividends from cell-tower providers poised for growth.
The screen
Telus Corp. T-T is exploring a possible sale of 49.5 per cent of its cell-tower network in an effort to pay down debt. That stake could attract as much as $1-billion, while keeping Telus in control of a network with some 3,000 towers spread across key markets.
Like Telus, all tower companies own and operate the physical structures, themselves, but it falls to the mobile network operators that lease space on those structures to install and maintain their broadcast equipment. As our TSI analysts point out, the arrangement makes for a diversity of customers leasing space on any given tower.
Our search started with dividend-paying cell-tower operators. From there, we focused on established players well positioned for cash-flow growth as demand rises and the industry’s high barriers to entry keep out new competitors. From there, we applied our TSI Dividend Sustainability Rating System, awarding points to a stock based on key factors:
- One point for five years of continuous dividend payments – two points for more than five;
- Two points if it has raised the payment in the past five years;
- One point for management’s commitment to dividends;
- One point for operating in non-cyclical industries;
- One point for limited exposure to foreign currency rates and freedom from political interference;
- Two points for a strong balance sheet, including manageable debt and adequate cash;
- Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
- One point for an industry leader
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated five stocks. American Tower Corp. AMT-N, based in Boston, is the largest independent operator of wireless telecom and broadcast towers, with more than 149,000 sites worldwide. Headquartered in Houston, Tex., Crown Castle Inc. CCI-N owns and operates more than 40,000 cell towers throughout the U.S. Not that the company is planning to sell its fibre business and will cut its dividend by 32.1 per cent later this year to reflect the loss of those assets. SBA Communications Corp., SBAC-Q based in Boca Raton, Fla., owns and operates towers, principally in the U.S., but also South America, Central America, Canada and Africa; all together, that’s almost 40,000 towers. DigitalBridge Group Inc., DBRG-N also headquartered in Boca Raton, is a global digital infrastructure investment firm. The company owns, invests in and operates businesses such as cell towers and data centres. These interests include Vertical Bridge, with more than 17,000 towers. And finally, Vancouver’s Telus continues to profit from selling telecom services to Canadians. The unlocking of value with the sale of the cell-tower stake, combined with Telus’s move to retain controlling interest, will further support its high dividend.
We advise investors to do additional research on investments we identify here.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.