Earnings season tends to start a little slow here at Stock Gumshoe, since I don’t own many of the stocks who report early — we had Intuitive Surgical (ISRG) last week and cell tower REIT Crown Castle (CCI) yesterday, but things will heat up in a big way next week, when I’ll have about a dozen earnings calls to monitor.
Crown Castle’s report was solid (conference call transcript is here), and they offered up a surprisingly high dividend increase of 11% (the biggest increase since they did their REIT conversion back in 2014)… and justified that increase with a forecast that their funds from operations growth will accelerate next year. They use Adjusted Funds From Operations (AFFO), like many REITs, and said that they’re on track to hit their long-term target of 7-8% AFFO growth in 2020, but that they see that bumping up to 10-11% growth in 2021.
At $160 a share, that’s now a 3.3% forward yield, with a history of annual dividend increases that averages out around 7-8%… and forecasts from the company that they should be able to sustain increases in cash flow and dividends at about that pace far into the future. A 3.3% yield that increases at even 7% a year is a solid investment these days, that’s roughly a 10% annual return and it offers a little bit of compounding if you reinvest… doesn’t sound dramatic, but it can be the kind of workmanlike stock that helps to provide a foundation and some ballast to a portfolio.
Just as an example, if you model it out now with the current dividend, and assume that investors are wiling to pay that same valuation (in terms of dividend yield) for the stock ten years from now, this is what that ends up looking like:
Buy 100 shares today at $157, with a forward yield of 3.4% and an expected dividend payout over the next year of $5.32. That will cost you $15,700 and generate $532 in income over the next year.
If you reinvest those dividends to let your investment compound, and we have 7% annual dividend growth and a corresponding 7% annual increase in the share price (since we’re guessing folks will still be willing to buy CCI at a 3.4% yield into the indefinite future), then in ten years your $15,700 would turn into $43,125, and you’ll have compounded those 100 shares into ...