We individual investors have many advantages over the Wall Street suits. Bet on following government handouts, however, are not one of them.
Megatrends, on the other hand, are our wheelhouse. Professionals excel at “looking ahead” for three to six months. Lucky for us, their eyes shine beyond a year! This is where you and I can regain our advantage in infrastructure income investing.
As Wall Street weighs the trees, we’ll consider the dividends of the larger megatrend forest. Highlight some aspects of the potential US Jobs Plan that also happen to be infrastructure trends already in motion.
A All quarters Dividend Hike Play on broadband
The White House’s US Jobs Plan “Fact Sheet” promises that the plan will be
offer broadband to all Americans.
If fast internet speeds become an inalienable U.S. right, then American Tower (AMT) is our payment game. The company owns the mobile phone traffic, collecting rents through its 170,000 towers from operators such as AT&T and Verizon.
The more videos we watch from our phones, the busier the “roads” provided by AMT. You can think of the business as a toll bridge.
This company is a “pick and shovel” on broadband. The phrase “pick n ‘shovel” dates back to the gold rush of the 1840s, when hordes flocked to California to enrich themselves by mining the metal. The guys who made real money didn’t actually mine anything. It was the entrepreneurs who sold the “pickaxes and shovels” as well as alcohol, “entertainment” and housing to the hapless speculators.
We do not peddle alcohol. Instead, we are investing in cell phone towers that AMT owns. It is a capital intensive operation that provides the company with a wide commercial divide. It also scales quite well.
Once AMT builds a tower, it can easily take over one or two additional tenants. Look at the illustration below, it’s as easy as bolting additional equipment to:
The return on investment (ROI) generated by AMT from a “single tenant tower” is only 3%. However, that jumps with each additional tenant, with an ROI reaching 13% for two tenants and one. awesome 24% for three tenants!
AMT is structured as a REIT (Real Estate Investment Company), which means that it pays the majority of its profits to investors directly in the form of dividends. We own the shares of our Hidden returns portfolio (my department dedicated to dividend growth) since the end of 2018 and have benefited from a 76% total return. Our profits are largely due to the fact that The AMT has been increasing its dividend every quarter for ten years.
More recently, the company increased its dividend by another 2%. The forward stock yield is listed at a modest 1.9%, but don’t let that fall asleep. Any dividend that rises this quickly will drive up the share price.
A similar pickaxe and shovel set on broadband is Crown Castle International (CCI). It is a REIT that owns cell phone towers as well as a broadband network. CCI “only” increases its dividend each year, but these increases have resulted in a 50% payout gain over the past five years. This increase is good for most stocks, but it is “sprinkled with dividends” by the cumulative increase of 131% in AMT over the same period!
This related yield of 6.5% is a holdback
When dividend investors need a higher current yield than that provided by AMT, we move on to Cohen & Steers Infrastructure Fund (UTF). This excellent fund is reporting 6.5% today and AMT is its fourth position (at 3%).
When investors are down on UTF, this is a great way to buy infrastructure growth stocks like AMT at a discount. As a closed-end fund (CEF), UTF often trades for less than the sum of its parts (NAV, NAV).
Unfortunately, as of this writing, other investors have figured out the trick of our Contrary income report holding. We were able to add UTF at a reduced price last November. Since then we’ve been up 22% on the position, which is great for current shareholders but not so much for those looking to invest new money.
Due to this rally, UTF is trading at 5% premium at its net asset value today. In other words, investors pay $ 1.05 for every dollar in their stock portfolio. We say “no thanks” for investing new money.
For my CIR subscribers fairly sitting on our current position, UTF is a Hold’em. We would have to wait for a withdrawal (and a rebate) to add new money.
Now back to pickaxes and shovels with a final game on electric vehicles.
This Dividend Aristocrat Produces What Electric Vehicles (EVs) Need
Going back to the White House fact sheet, another high profile bullet promises to create good jobs by electrifying vehicles.
EV batteries require lithium. Demand for lithium is already higher thanks to the increase in sales of electric vehicles. This moving trend can only intensify with government money.
For income lovers, Dividend Aristocrat Albemarle (ALB) is the lithium producer to watch. The company recently raised $ 1.5 billion in equity in an effort to accelerate “high yield” growth projects. It was a smart move given the demand image above, but the additional stocks weigh on the short-term action.
Brett Owens is Chief Investment Strategist for Contrary perspectives. For more great income ideas, get your free copy of his latest special report: Your early retirement portfolio: 7% dividends every month forever.