With the massive growth of mobile data usage and the rollout of 5G networks, investing in cell towers has become an attractive option for many investors. Cell towers have stable and recurring revenue streams from hosting telecom equipment. There are a couple of ways for investors to gain exposure to cell towers. Investing directly in cell tower REITs provides pureplay exposure, while investing in tower companies allows exposure to growth. In both cases, cell towers provide steady income streams as well as growth potential.
Investing in cell tower REITs provides stable cash flows
Cell tower REITs like American Tower and Crown Castle own, operate and lease space on communications sites to wireless carriers and other tenants. These REITs generate stable and predictable cash flows by leasing antenna space on towers via long-term contracts. The contracts have automatic yearly price escalators, providing growth over time. REITs must distribute at least 90% of taxable income as dividends to shareholders. So cell tower REITs offer attractive dividend yields in addition to capital appreciation. The cell tower industry is an oligopoly with high barriers to entry, limiting competition. With data usage growing exponentially, wireless carriers must continue to invest in network coverage and capacity, driving tower leasing demand.
Investing in tower companies provides exposure to growth
In addition to REITs, there are cell tower companies like American Tower, Crown Castle and SBA Communications which operate both as REITs and tower companies. The tower company allows them to retain 100% of cash flows for reinvesting in building new towers, acquiring towers internationally, and upgrading technology. Building additional towers and shaping networks for 5G provides growth. Tower companies have higher growth potential than REITs, but cash flows are not solely dedicated to dividends. Investors get tradeoff between current income and growth from tower companies.
Diversification and growth make cell towers an attractive investment
Cell towers provide diversification for a portfolio, with returns that are uncorrelated to traditional stocks and bonds. Steady leasing revenues provide stability while escalators and technology upgrades add growth. With the surge in mobile data usage and 5G rollout boosting demand, cell tower investment offers attractive income streams and capital appreciation over time.
Investing in cell towers can provide portfolio diversification and exposure to growth in mobile data usage. Direct investment in cell tower REITs offers stable dividend income while tower companies allow for greater growth potential.