After spending the last few years in the doldrums, REITs have finally started picking up steam now that interest rates have seemingly peaked. Which makes it a great time to invest in these 5G technology REITs.
You’ve probably heard the term 5G. It is the latest, or “fifth generation,” of cellular wireless technology currently in the process of being rolled out. But it’s way more than just some incremental generational cell phone advancement. It is a game changer that will thrust the world into a new age.
A new generation rolls around every 10 years or so, from the first one that enabled cell phones in the first place to the third and fourth generations that enabled smartphones and mobile data. Each generation marks an improvement in speed and latency, the amount of time it takes devices to communicate with each other. This generation is projected to add massive speeds, up to 100 times faster, and internet connectivity with far superior speed, scope and scale.
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The implications go well beyond phones. It is a crucial tipping point of critical mass. 5G enables virtually instantaneous internet connectivity, providing the technology for a new range of advancements like self-driving cars, robotics, artificial intelligence, smart cities and much more. To this point, the digital age was like a dirt road. It’s now about to become a 10-lane highway with speed rails and air traffic. You ain’t seen nothin’ yet.
5G is infrastructure. Every new generation requires more and better cell towers and supporting structures. This new generation requires even more because, although it provides great speeds and power, it doesn’t have the cell signal range of previous generations. Therefore, it requires more towers and supporting technologies to increase the range and relieve congestion.
Aside from the major cell phone providers, there are three big players in 5G infrastructure, and they’re all REITs. It’s a business that provides both growth, with the 5G expansion, and defense, as the expansion will continue rain or shine in a good economy or a bad one. Right now, these 5G technology REITs are an incredible opportunity for income investors.
5G Technology REIT #1: American Tower Corp. (AMT)
American Tower is the largest U.S. cellular infrastructure REIT. It owns and operates 225,000 cell towers worldwide. And it’s growing. It has been rapidly adding cell sites for years. American Tower leases its towers to cellular service providers under long-term contracts, acting as a mobile technology landlord.
Business is good. The stock has blown away its REIT peers. It is benefitting in the U.S. from the voracious demand for 5G as well as in emerging markets as low-cost smartphones proliferate at a torrid pace.
Not only is the business very profitable right now; it’s also defensive. The REIT has grown revenues by 9.7% annually over the last five years. And, despite a challenging year for REITs as a whole last year, it looks like it’s back in business as the REIT is forecast to grow revenues by more than 20% in 2025 on the heels of a more modest 2024.
5G Technology REIT #2: SBA Communications Corp. (SBAC)
SBA is the smallest of the cellular infrastructure REITs with about 40,000 cell towers in North, Central and South America. It has a huge presence in Brazil but generates about three-quarters of revenue in the good ole USA.
It has essentially the same business model as AMT in that it leases space on its towers to cellular service providers under long-term contracts. The key differentiating point is size, which is both a blessing and a curse. It’s much smaller than the other two REITs. On the downside, all the earnings go back into growth and the company only pays a small dividend, currently yielding 1.4%.
On the positive side, the upside is juiced. Smaller companies can grow faster. Performance has been better than AMT, and SBA is projected to grow more over the next five years.
5G Technology REIT #3: Crown Castle International Corp. (CCI)
Crown Castle International Corp. leases a portfolio of properties that currently includes 40,000 cell towers, 115,000 small cell towers and 85,000 miles of fiber optic cable primarily to the three largest wireless service providers in the U.S.
It has the same basic business model as the other two, but it pays the highest dividend, currently a 5.5% yield. It also operates exclusively in the U.S. The 5G story is so good that I don’t want to risk any crazy emerging market shenanigans messing things up. But perhaps the most important advantage is the small cells.
The current 5G build-out plays right into Crown Castle’s hands. Although speed and latency will improve by staggering amounts, this generation lacks something previous ones had – range. A 5G signal only travels about half a mile, compared to several miles for earlier generations. That means that small cell towers will be needed all over the place in order to increase the range and relieve congestion.
Crown Castle is the small tower king. Small towers are about the size of a pizza box, and will soon decorate almost every street corner. It’s estimated that hundreds of thousands more will be needed, and Crown Castle already owns 115,000 and has signed multibillion-dollar contracts with the three largest cell providers (Verizon, AT&T, T-Mobile) to provide more.
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*This post is periodically updated to reflect market conditions.
