One of the best things about buying real estate investment trusts (REITs) is that with the right stock an investor can not only gain some appreciation but also procure a solid monthly or quarterly dividend for additional income.
But because not all REITs will deliver solid appreciation and dividend growth, it’s important to look at their five-year history to assess possible future returns. Take a look at one popular REIT over the past five years and what it’s generating in dividends today compared with November 2017.
American Tower Corp. AMT is a Boston-based specialty REIT that calls itself “A global leader in wireless infrastructure.” American Tower Corp. was founded in 1995 and owns, operates and develops wireless and broadcast communications real estate. Most of its focus is on leasing space on wireless and broadcast towers.
American Tower Corp. has a presence in 223,000 global communication sites in 25 countries across six continents. About 43,000 of those properties are in the U.S. and Canada, and approximately 180,000 are international properties.
If you invested $10,000 in American Tower Corp. in mid-December 2017, you would have purchased approximately 69.62 shares at a price of $143.64 per share. Your original investment would now have grown to $17,064.19, which includes $21.67 of collected dividends plus appreciation of $79.75. That’s a total return of 70.61%, or an average total annual return of 11.28%.
At the time of your purchase, the quarterly dividend paid $0.70 per share for an annual yield of 1.9% — not outstanding when compared with many other REITs.
But over the past five years, American Tower Corp. raised the quarterly dividend 19 times, growing it from $0.70 to $1.47 for an increase of 110%. And just last week, American Tower Corp. announced another quarterly dividend hike to $1.56 per share, scheduled for payment on Feb. 2 to shareholders of record as of Dec. 28, 2022.
Based on the new forward annual dividend rate of $6.24, the dividend now yields 2.79% on the stock’s most recent closing price of $223.39. And with forward funds from operations (FFO) of $11.68, the payout ratio is a very safe 53%. With the FFO covering the dividends so easily and with its five-year history as a guide, future hikes are entirely possible.
The annual yield on the $143.64 share price you paid in 2017 would now be 4.3%. So it’s easy to see why an investment in a quality REIT can become quite lucrative over time.
Some investors prefer to reinvest their dividends over time, building more shares of the stock rather than collecting the cash. If you invested $10,000 in American Tower Corp. five years ago, your original 69.92 shares would have grown to 77.07 shares for a total return of 72.17%, or an average annual total return of 11.48%. Your original $10,000 investment would now be worth $17,218.08.
While there is no guarantee that five years from now a $10,000 investment in American Tower Corp. will create the same returns as the previous five years, top-performing companies are the ones most likely to repeat or improve their past performance over time.
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