“The ‘Amazon’ of the 5G economy” teased by Zach Scheidt

By Travis Johnson, Stock Gumshoe, October 7, 2019

Zach Scheidt is pitching his Lifetime Income Report ($49) newsletter by hinting at some more big 5G winners — and while there’s probably not a whole lot new in the four stocks he’s teasing, since most of the 5G stocks have been discussed to death as we wait for the surge of next-generation profits to emerge, maybe we’ll find something new to talk about or buy.

I won’t bore you with another repetitive look at the explosive future of the 5G wireless standard — we’ll just start out by stipulating yes, 5G is going to have the potential to be 100X faster than 4G, and it will enable all kinds of high-tech new services that we can barely imagine now… and also that it’s going to take many years to build it out across the US and across the world, mostly because 5G uses much shorter-wavelength spectrum and therefore the signals have a much shorter range… meaning that a network will need a lot more base stations to work. (Think about a couple small cell antennas on every block instead of a big cell tower every mile).

There’s plenty of debate about 5G, including worries about the health impacts, but I fully expect these networks to continue to be built, at pretty rapid speed over the next several years, and that we’ll see 5G phones in pretty wide use in the US, at least in major cities, by 2020 or 2021.

So that’s where I’m coming from… now let’s move on to what Zach Scheidt is touting…

The primary stock he’s teasing is something he calls the “Amazon of the 5G economy”

What’s with that “Amazon” comparison? Here’s how he sells that idea:

“When other companies’ entire business models are designed around the infrastructure that YOU own and operate, YOU have the power, and YOU are making the real money

“Now Amazon is a household name.

“But there are other companies that play an ‘Amazon’-like role that aren’t nearly as famous.

“The company I’m going to tell you about here could be the ‘Amazon’ of the 5G economy”

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So how does he mean? Well, he indicates that this company is providing the foundation for 5G — which means its probably something like one of the cell tower or fiber companies. More clues:

“This company is building the underlying infrastructure that will make up America’s 5G network.

“They are well-positioned to not only profit in the short term with the initial construction boom — but also provide a steady, reliable source of growth for the long term.”

OK… any specifics?

“… this company I’m here to tell you about has developed an ingenious solution to meet that demand and generate recurring revenue for their shareholders.

“In recent years they’ve found great success acquiring and managing a portfolio of real estate and infrastructure related to renewable energy, outdoor advertising and, most importantly, wireless communication.

“They lease that land and infrastructure out to other companies in the advertising, energy and telecommunications industries.

“It’s a solid business model that has generated consistent income for shareholders.”

And apparently they’re doing something innovative for 5G…

“They have partnered with one of the world’s largest telecom equipment companies to build a new type of cellular tower that will form the backbone of America’s 5G network.

“These ‘smart poles’ will provide connectivity for 5G phones, as well as IoT devices, private LTE and other wireless networks, older 4G phones, and more for ALL carriers.

“All those giant telecom companies will be paying rent to this company — and if you’re a shareholder, they’ll practically be paying rent to YOU.”

So who is this? Thinkolator sez we’re being teased with the infrastructure MLP Landmark Infrastructure Partners (LMRK).

Landmark Infrastructure Partners is a publicly traded partnership, so it’s a tax pass-through much like a Real Estate Investment Trust… and in fact, it really is a REIT, it’s just a REIT hiding inside a MLP structure, so you’ll get a K-1 and have to file some additional tax information, and it will probably come late, but it will be simpler than most MLPs. That oddity of structure probably helps to explain why the yield is a bit higher than you’ll see with most infrastructure REITs (that, and it’s also quite small, carries a lot of debt, and is only five years old).

And I shouldn’t say “a bit higher,” the yield is a lot higher than most — the LP units currently pay a distribution of 36.75 cents per quarter, so at the current $17.84 that’s 8.3%. The only other telecom infrastructure REIT that was near that, as far as I’m aware, was Uniti Group (UNIT), which had a double-digit yield because of the risk of its major tenant (Windstream) going through bankruptcy… and investors were right to see risk in that one, the dividend was slashed earlier this year.

So what’s the story with Landmark Infrastructure? It is a publicly traded partnership with an external manager (general partner Landmark Dividend), and they own real estate that is used for infrastructure, renewable power, and billboards — but they don’t actually own the billboards or the cell towers, they lease to those companies, so this is literally owning the land beneath the billboard or the cell tower.

Which is interesting, though it’s a little hard to get your head around — these are extremely long-term ground leases, and the companies that then lease from Landmark are themselves often REITs (they do lease some space to the big wireless companies like AT&T and Verizon, but some of their biggest tenants are the tower companies Crown Castle (CCI) and American Tower (AMT), and the billboard REITs Lamar Advertising (LAMR) and Outfront Media (OUT)).

Wireless accounts for roughly half of their revenue, with billboards another third, and the balance is renewable power. The growth must largely come from acquisitions of new properties, which seem to be sourced through their general partner, but there is some embedded growth as leases are renegotiated for upgrades (like to digital billboards) or as new tenants are added to existing spaces where feasible… and there are annual escalators on the leases that are designed to keep up with inflation (which is working fine for now, though as with most escalators in this disinflation era they envision only 2-3% inflation). They also do some joint ventures (like with Brookfield last year), and they do have a “smart pole” project with Ericsson that they’re trying to get some traction with — they call that “FlexGrid”, you can see some basic info about it here.

Like most REITs, Landmark Infrastructure reports some cash flow figures to highlight their ability to pay a big dividend — though even when it comes to adjusted funds from operations (AFFO), they don’t quite have enough cash flow to pay the dividend in recent quarters (for the first six months of this year, AFFO per unit was 64 cents, similar to last year’s 65 cents at this point in the year, and the dividend distribution for the first two quarters was 73.5 cents). I can’t say that I’ve gone through the filings in enough detail to tell you whether or not that’s genuinely worrisome, but before buying shares I’d at least want to understand how they can pay out substantially more than most of the common cash flow metrics for these kinds of REITs would indicate is possible.

The other thing to keep a little bit of an eye on with Landmark is that although the debt seems pretty manageable at a little under $400 million, and the debt cost seems to be contained with swaps and other tools, they do also have about $125 million worth of pretty high-yielding preferred shares out there… so the total cash cost of dividends and interest should be over $55 million a year, but the cash from their operating business doesn’t come close to covering that. There are some large odd items in there that make it look more reasonable, presumably from the big joint venture sale they did to Brookfield last year, but I’d want to understand that a bit better before betting on the stock.

Yes, the assets are valuable and very long-lived, with 50-100 year leases and 99% renewal rates in a lot of cases, and very low operating expenses, and sometimes that’s worth paying a premium for… but when it comes to income investments like LMRK the stock will be priced primarily based on the dividend, and I’d want to be more confident that the cash flow can sustain that dividend. Perhaps one of you is a shareholder and can talk me into it, or maybe I’ll research it further and find something to like… but for now, it looks too risky to me — oddly enough, it would probably be more appealing with a lower but more obviously sustainable dividend. If you’d like to do a little research into this one, the latest investor presentation is here and the transcript of their last conference call is here.

And Scheidt also hints at three other “growth + income” stocks to profit from the 5G revolution, so I won’t go through those in detail but I can at least give you some Thinkolator answers…

“The Telecom Super-REIT Hiding in Plain Sight

“How many cell towers are in your neighborhood, town or city? Chances are at least some of them are owned by this real estate investment trust (REIT). This company is unique because of their comprehensive approach to investing in telecom infrastructure, including not only cell towers, but fiber optic cables and small cells as well.
At this time the company owns, operates and leases over 40,000 cell towers and a mind-boggling 65,000 miles of fiber optic cables….

“Right now, this pick offers a respectable dividend yield of around 3.30%”

That’s Crown Castle (CCI), one of the large triumvirate of cell-tower REITs… and the only one that pays a fairly large current dividend (it is about 3.3%, with expected growth of at least 6-8% a year, its larger competitor American Tower (AMT) grows its dividend faster but pays only 1.6% currently… SBAC doesn’t yet pay a dividend). I own CCI as well and have written about it plenty of times — the tower REITs have all been teased many times over the years, my latest detailed look is here.

Next?

“The 5G Mega-Stock Serving One-Fifth of Humanity

“It might come as a surprise, but some of the biggest 5G markets won’t be U.S. — they’re going to be thousands of miles away in Asia, simply because that’s where the majority of the world’s people are.

“This next pick is playing a critical role in bringing 5G service to the world’s most populous country.

“With 1.4 billion people, China makes up nearly 20%, or one-fifth, of the world’s population. While not all of them will get or need 5G service right away, investing in a company providing 5G services to even a portion of them could result in staggering returns….

“But this Chinese telecom giant isn’t a new company or one-trick pony. They’ve experienced healthy growth providing non-5G mobile service for decades.

“Combine this with a healthy dividend of around 4%, and you’ve got a potentially fantastic long-term investment.”

That’s almost certainly China Mobile (CHL), the largest mobile provider in China and certainly a dominant telecom in that market… though even with that strong dividend it’s worth noting that their first priority is not necessarily the enrichment of investors. There’s been some chatter that they might expand, too, with a joint bid with Huawei for one of the big Brazilian telecom companies (Oi), though that too is probably at least as much a strategic move as an economic one for CHL. The stock has outperformed most of the little international telecoms over the years, so it does provide some “emerging market” exposure that’s much less volatile than firms like Millicom, though it has also been quite a bit weaker in recent years than the US giants AT&T and Verizon. Haven’t looked at the numbers recently, but a 4%+ yield is certainly interesting after a long period of relatively “blah” stock performance.

And one more…

“Profit Big by Thinking SMALL With This 5G Hardware Giant

“While a lot of the 5G picks I’ve mentioned here focus on cell towers and infrastructure, this next company is playing a big role by thinking smaller.

“This company makes chips and modems that go inside smartphones and other connected devices. They’ve recently made headlines by developing a new type of 5G-compatible modem that will be an indispensable component of the new generation of smartphones.

“It’s a big-name, future-centric company that is positioned to grow in the 5G era, while also delivering solid growth and dividend payments right now. Currently, it’s paying out a nice dividend yield of around 3.50%.”

Thinkolator sez this must be our old friend Qualcomm (QCOM), which is certainly a 5G leader and a wireless pioneer, and also well-known and large (market cap over $90 billion), though they’ve had some wild ups and downs over the past four years as their battles with Apple and others over licensing fees and with the government over antitrust concerns have brought some big and fast swings in the share price. It’s hard to see anyone beating Qualcomm in supplying the first high-speed 5G modems, but it’s also hard to see them being as profitable in this cycle as they were in the 3G and 4G cycles, given that they have less and less of a monopoly and more pressure on their wireless technology licensing business. The big swings from $50 to $70 and back a few times in recent years might give you heartburn, and it’s “in favor” again in recent months so its not exactly cheap… but I wouldn’t bet against Qualcomm (and in fact, I have some QCOM call options in my portfolio, though I don’t hold the stock currently).

There you have it dear friends — a new (to us) wireless (and other stuff) REIT that’s fairly risky, and some more mainstream 5G bets in China Mobile, Qualcomm and Crown Castle… any of that sound appealing to the dividend-focused among you? Let us know with a comment below. Thanks for reading!

Disclosure: Of the companies mentioned above, I own call options and/or equity in Qualcomm and Crown Castle. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.



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vivian
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Oi is not going to become a celltower play because Telefonica de Espana and two other telcos operating in Brazil are proposing to divie up its assets post-brankruptcy.

stoker
Irregular
👍6
stoker

Defiance offers 3 5G ETFs VIDG, FIVG, and SRVR.
Gaming, Communications, and REITs

jimlepper
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jimlepper

Thanks !

kevinrawle
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kevinrawle

I only invest in dividend stocks with a solid long term history of good returns. It is easy to view stocks on Morningstar and see which of them have no negative returns for the past 10 years (or just one negative year in the past 10) these charts are the true indicator of a good company. I have found around 30 of these paying a dividend and I simply choose the best of these – with a 65% annual return plus dividends . All these tech stocks are really volatile, so you are really taking a risk when you invest… Read more »

BrokeZachSubscriber
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BrokeZachSubscriber

Yikes,..you lost me at Zach Scheidt. ….To be fair,….his last ten stock picks have been DOGS !!! Each has lost over 50 cents in the first few days of his picking them, and each went on to lose a few dollars or more per share over the following weeks or months. Zach should write a book named,….. How to lose a fortune by listening to Zach Scheidt…….UAA, CIO, RDUS, USFD, EBAY, MRO, WIFI , and so many other really, really bad picks. Literally a blind folded monkey could beat his picks. Many of his picks are down 3 to 6… Read more »

Dapple01
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Dapple01

Great Job !

Eric
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Eric

@kevinrawle, what’s in your portfolio if you don’t mind me asking?

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HugoTheImpaler
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HugoTheImpaler

kevinrawle gets a 65% return plus dividends. Amazing. Perhaps a special form of snake oil should be marketed immediately.

Gary Reynolds
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Gary Reynolds

CCI, AMT and QCOM are all solid plays on the mobile and 5g advances coming at us.

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lsanglsnick
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lsanglsnick

@kevinrawle would you mind sharing some of the companies you’ve invested in based on your assessments from Morningstar?

cacmgm
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cacmgm

Companies making 5G home internet connection devices. Thanks, cacmgmt@me.com

Carbon Bigfoot
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Carbon Bigfoot

All you really have to do is look at the rise in disease, any disease really, and see how well it mirrors the rise in the usage of higher frequency RF as well as the broader frequency range, to question whether it is a sign of a growing civilization, or one that is moving towards killing itself off. After all, carbon is a pretty good modulator, and everything on this planet is carbon based. We can blame everything under the Sun that we produce for all the issues in the environment, but it is the RF “pollution” that is destroying… Read more »

mike
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mike

I have read some where that none of the major insurance companies will cover the 5g technology itself can anyone comment on this please
mike

John Wilkinson
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John Wilkinson

How about Skyworks Solutions Inc. ?

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Joe
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Joe

Any ideas about MRVL?