Wednesday, February 24, 2010

What's the potential dividend at American Tower? (AMT)

Cell-tower giant American Tower (AMT)  reported earnings earlier today.  Q4 2009 EPS of 16cents missed the street's expectation by 2cents, yet revenue came in higher than expected.  The company's outlook for 2010 looks pretty good to me.

Their gross margin, by my estimate(using revenue minus site rental expenses, etc) , increased 40basis points in 2009, from 75.5% to 75.9%.  SG&A costs dropped from 11.6% of revenue to 11.3%, so those add up to nearly a point of extra margin.  AMT stock of course, is way out ahead of itself, up 57% in 12months.

The company does not currently pay a dividend, preferring instead to continue investing heavily in it's network of towers.  I know of very few other business models as well-positioned over the coming years as American Tower's - they can leverage each tower with more and more tenants (to a degree of course), as smartphone explosion creates simply mind-boggling need for more bandwidth.

American Tower has a great operating model, but it's only a decent stock at the right price.  AMT is one of those stories that is LOVED by the PBA community (PBA being "Price-Blind-Argument," which I outlined in my 2010 outlook), but they neglect to mention at what price it makes sense.

 I don't personally see a reason to own the shares unless the company changes its stance on paying a dividend - not in the cards currently.  By my estimates, they could pay out 40% of 2010's after-CAPEX Free Cash Flow, for a dividend of 64cents per share and a dividend yield of 1.5%.  Maybe that's what the stock is pricing in, or maybe it's pricing in a higher dividend yield.  We'll see.

Copyright 2010 AlphaNinja

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