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Crown Castle: Wireless REIT

04/06/2015 8:00 am EST

Focus: REITS

John Dobosz

Editor, Forbes Premium Income Report and Forbes Dividend Investor

Most real estate investment trusts own buildings like office buildings, shopping malls, or apartments that produce streams of rental income that’s passed on to shareholders as dividends, explains John Dobosz, editor of Forbes Dividend Investor.

Because of the appealing pass-through nature of REITs, which allows companies to avoid taxation at the corporate level if at least 90% of net income is paid out to shareholders, a number of companies that aren’t traditional landlords are electing to convert to REIT status.

Our latest recommendation is a good example. Houston-based Crown Castle International (CCI) is the largest provider of shared wireless infrastructure in the US, with 40,000 towers, 14,000 small cell nodes, and 7,000 miles of fiber.

It also operates 1,800 towers in Australia. In January of 2014, Crown Castle converted into a REIT. Revenue is expected to grow 2.1% to $3.77 billion this year, with earnings rising 5% to $4.40 per share.

Following its REIT conversion last year, Crown Castle jacked up dividend payouts from $0.35 to $0.85 per quarter. With $3.28 in annual dividends at the current rate, CCI yields north of 3.8%.

Current valuation measures strongly suggest that Crown Castle has room to run higher in price. Trading at 32.3 times trailing 12 months of free cash flow, CCI sports a fat 19% discount to its average price to free cash flow ratio over the past five years.

Also, with enterprise value of 18.9 times expected 2015 EBITDA, Crown Castle presently trades 16% below the five-year average enterprise value to EBITDA multiple.

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