Real estate investment trusts (REITs) can be great wealth-creating vehicles. They've historically outperformed the S&P 500 over the long term by supplying a steady rising stream of dividends and healthy capital appreciation. Because of that, they can grow a small investment into a much larger nest egg over the years.
One of my best-performing REIT investments is American Tower (NYSE: AMT). The communications-focused infrastructure REIT has delivered a 457% total return on my initial purchase, easily outpacing the S&P 500's 330% total return during that time frame. That's turned every $100 I invested in the REIT into more than $550.
Here's a closer look at how the REIT has created so much shareholder value over the years and whether it can keep enriching shareholders in the future.
I started buying American Tower nearly a decade ago. That allowed me to benefit from the company's excellent results over the years. Since 2010, the infrastructure REIT has grown its consolidated AFFO (adjusted funds from operations) per share at a 13.7% compound annual rate. That's helped support more than 20% annual dividend per share growth since 2012 when I first started investing in the REIT.
Driving that growth has been American Tower's ability to steadily expand its communications sites portfolio. The company has launched in several new markets, including acquiring tower platforms in several European countries, Australia, and Canada since I started buying shares. These acquisitions have provided the company with expandable platforms, setting the stage for additional growth.
One of the keys to success in the tower industry is adding additional tenants to each site. American Tower primarily purchases towers from mobile carriers that built them to suit their needs. However, the company has been able to leverage these sites and add additional tenants to the towers, which has increased its revenue and returns.
It has also built new sites for tenants and benefitted from steadily rising rental rates on its leases. These factors have all combined to deliver double-digit revenue, EBITDA, and AFFO growth over the last decade.
Lots of room to keep rising
American Tower believes it can continue delivering strong results for shareholders in the coming years. The infrastructure REIT set a long-term target to continue generating double-digit average annual AFFO per share growth.
A key near-term driver of that forecast is the company's recent acquisition of Telxius Towers from Telefonica (NYSE: TEF). It's paying $9.4 billion for the large-scale communication site owner in Europe and Latin America. That deal provided it with a near-term income boost and significant upside potential.
One of the growth drivers is a commitment with Telefonica to build 3,300 future tower sites in Germany and Brazil through 2025. In addition, the average site only has 1.3 tenants per tower, with Telefonica serving as the anchor tenant. That provides American Tower with room to add more tenants, which should boost its revenue and returns.
Meanwhile, American Tower has lots of room to continue expanding in the future. It has a strong investment-grade balance sheet and a conservative dividend payout ratio, giving it the financial flexibility to continue making tower investments. In addition, it has lots of room on its towers to add more tenants.
Finally, its infrastructure will play a leading role in helping mobile carriers deliver on its 5G plans. For example, the company signed an agreement with DISH Networks (NASDAQ: DISH), which will lease space on up to 20,000 of its towers in the U.S. to deploy its new nationwide 5G network. That deal will start generating cash next year and should grow over time. The company will likely secure more 5G-related contracts with mobile carriers in the U.S. and abroad as they upgrade to this faster network in the future.
A great REIT to buy and hold
American Tower has been a great investment over the years. It has delivered a steadily rising dividend along with substantial capital gains. The REIT seems likely to continue enriching shareholders in the coming years, given all its growth drivers, which is why I plan to keep holding.