To generate a reliable and expanding passive income, I want to find shares with solid fundamentals and plenty of long-term dividend potential. There are undoubtedly plenty of UK shares that match this description. And yet it’s an American firm that’s caught my attention this week. Why? Because it’s in the process of taping into a $13.1trn market opportunity!
Shaping the world’s digital infrastructure
The company in question is Crown Castle (NYSE:CCI). It owns and leases network infrastructure in the US to some of the largest telecommunication businesses, including T-Mobile, AT&T, and Verizon. In total, the group’s asset portfolio contains more than 40,000 mobile towers, 115,000 mobile nodes, and roughly 85,000 miles of fibre optic cables.
Customers pay a monthly rent to borrow the infrastructure for their own businesses. This means a steady and reliable stream of cash flow. After all, client contracts typically last a minimum of five years, with some extending to as much as 15 years. And with prices incrementally increasing each year, revenue and earnings have steadily risen. Subsequently, dividends have followed suit, creating a passive income stream that’s growing by an average of 9.4% annually.
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Investing in mobile towers is hardly the most exciting enterprise. However, an independent report by research group IHS Market has revealed a multi-trillion-dollar opportunity within 5G. The fifth-generation telecommunication technology is capable of near-zero latency. That’s a critical requirement for evolving systems like autonomous vehicles, drone deliveries, automated farming equipment, remote surgery, and countless other applications.
That’s why 5G is expected to boost global GDP by 10.8% over the next decade. And Crown Castle is perfectly positioned to capitalise on this technological revolution.
Building a £1,000 passive income
Today, the business trades at a stock price of $145 and returns $6.26 per share in dividends annually. This places the yield at a tasty 4.3%. Based on the current exchange rates (£1,000 roughly equals $1,230), I would need to buy 197 shares to hit my passive income target.
Unfortunately, that’s not the cheapest of transactions since I would need around $28,500 (£23,000). However, hitting this goal isn’t as impossible as it may seem. Something as simple as a FTSE 250 index tracker has historically delivered an annual return of 10.6%. If I were to invest just £500 a month into one, I could theoretically generate the required capital in just over three years.
As exciting as that sounds, there are, of course, risks. Setting up telecommunication infrastructure isn’t cheap. Consequently, Crown Castle has and continues to rely on debt financing. This is becoming increasingly expensive due to rising interest rates.
Furthermore, historical performance is usually a poor indicator of future results. And the FTSE 250 may not be as generous in the coming years. So it could take longer to amass the required capital, especially if exchange rates move in an adverse direction in the meantime.
Despite these caveats, the investment case remains compelling, in my eyes. And that’s why I’m tempted to snatch up some shares for my own income portfolio once more capital becomes available.
