REIT investors can learn a lot from this side-by-side comparison. First, Crown Castle offers a much higher-yielding dividend, primarily because it has a much higher payout ratio. It also has a higher credit rating from most rating agencies, mainly due to its relatively low leverage ratio. However, that's not the only factor they consider. For example, Moody's (NYSE: MCO) noted that it took SBA's substantial tenant concentration into account as a reason for its sub-investment-grade rating.
Portfolio focus and growth prospects
While Crown Castle and SBA Communications both own telecommunications infrastructure, their portfolios have slightly different makeups. Crown Castle owns 40,000 cell towers in the U.S. as well as 80,000 miles of fiber optic cable and 70,000 small cell sites crucial for 5G technology. Meanwhile, SBA Communications owns 30,000 communications sites, though its operations span 14 countries across North and South America as well as South Africa.
Given their distinct portfolio focuses, these infrastructure REITs have differentiated growth profiles. On the one hand, Crown Castle's focus on the mature U.S. market somewhat limits the expansion potential of its core tower business. On the other, its 5G platform has lots of room for growth as U.S. mobile carriers roll out this new technology. In Crown Castle's view, it can continue expanding its portfolio and FFO to support 7% to 8% annual dividend growth over the long term.
Meanwhile, SBA Communications focuses on several higher-growth international markets. Because of that, it could expand its portfolio at a faster clip through both acquisitions and organic growth. In its view, this growth upside will allow it to pay out "one of the fastest-growing dividends anywhere," according to comments by CEO Jeffrey Stoops on the company's first-quarter conference call. However, this international exposure does increase its risk profile since foreign exchange rates fluctuate, for example.
Another important factor that REIT investors should consider when evaluating similar opportunities is valuation. One common metric used to compare values across the sector is the price-to-funds from operations (FFO) ratio. Here's how these two REITs compare: