I know it’s hard not to worry about your portfolio, and income stream, these days, but we will make our way through this crisis. And, when the time is right, I expect we’ll get a chance to snap up some huge dividends for dimes on the dollar, suggests Brett Owens, editor of Contrarian Outlook.
But if you insist on deploying some cash now, I’ve got you covered there, too. Investors should consider two strengths in anything you buy in the coming weeks — a low beta and a safe and growing dividend.
A stock's beta is a handly volatility indicator. Here’s how it works: the “beta” of the S&P 500 is always 1. So a stock with a beta below 1 is less volatile than the market. Betas above 1 are more volatile.
Crown Castle International (CCI), a cell-tower owner. CCI’s beta, measured over the past five years, is 0.28, meaning CCI has been 72% less volatile than the S&P 500.
Crown Castle’s low volatility makes sense: the real estate investment trust (REIT) forms a big part of America’s communication backbone, with its 40,000 cell towers and 80,000 route miles of fiber-optic cable.
REITs have been hammered in this downturn, and the pain got worse on April 1, when millions of people told their landlords they can’t pay the rent. CCI doesn’t have that problem, with cell service critical in this period of isolation, and among the last things cash-strapped consumers will cut.
That means the company’s clients, including Big 4 US telcos Verizon (VZ), AT&T (T), Sprint (S) and T-Mobile US (TMUS), are unlikely to leave CCI holding the bag. Combined, these four supply 74% of CCI’s site-rental revenue, a high concentration that actually provides a measure of safety these days.
The company also gets revenue certainty from its long-term leases: as of November 2019 CCI had a weighted average remaining lease term of five years. But we’re getting off track—let’s move on to my second “must have” that any stock on your shopping list needs to have today.
Of course, a history of dividend growth isn’t enough, because as we’ve seen recently, several companies that have made steady payouts for years have hit the brakes on them, and there are more to come, with Goldman Sachs (GS) recently saying it expects dividend payouts to fall 25% this year.
For extra insurance, then, we need to look at other factors, including a stock’s payout ratio. For a REIT, that means dividing the annualized dividend into the last 12 months of adjusted funds from operations (FFO) — a better measure of REIT performance than earnings per share.
In the case of CCI, we get a payout ratio of 84%, which is plenty safe for a REIT with long-term, predictable revenue streams.
