Digital Realty Trust (DLR)

The logo for REIT Digital Realty on the side of a Silicon Valley data center building
Sundry Photography/Shutterstock

Digital Realty Trust is a real estate investment trust that owns, operates, acquires and develops data centers. The company’s shares climbed more than 20% over the past year, but Bank of America believes the REIT can go even higher.

Earlier this month, the bank reiterated its Buy rating on DLR and increased its price target from $175 to $190. Considering that the REIT trades at around $160 per share, Bank of America is projecting a potential upside of 18.8%.

Data centers have been in high demand, so unsurprisingly, business is booming at Digital Realty Trust. Since 2005, the company’s core funds from operations (FFO) per share have increased at a compound annual growth rate (CAGR) of 11%.

Digital Realty Trust also offers a steadily increasing stream of dividends to shareholders: It has raised its payout for 16 consecutive years.

In Q3 of 2021, the company signed total bookings that are expected to boost its annualized rental revenue by $113 million. Core FFO came in at $1.65 per share for the quarter, up 7.1% from a year ago.

DLR currently offers an annual dividend yield of 2.9%.

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SBA Communications (SBAC)

Companies that own communications towers represent another way to play the 5G boom.

“We expect carrier capex intended to build out 5G networks, C-Band, and other spectrum deployments will remain the key tailwind for demand growth,” says Bank of America about this group.

Among tower owners, SBA Communications is Bank of America’s top pick.

Structured as a REIT, SBAC owns and operates a portfolio of wireless communications infrastructure that includes towers, buildings, rooftops, distributed antenna systems and small cells.

The company leases antenna space to a variety of wireless service providers under long-term lease contracts. It also assists wireless services providers and operators in developing their own networks.

SBAC has attracted a lot of investor attention, with shares soaring 223% over the past five years.

As you’d expect from that share price performance, the company is pumping out impressive growth rates.

In Q3 of 2021, SBAC’s total revenue increased 12.7% year-over-year to $589.3 million. It generated adjusted FFO of $2.71 per share for the quarter, up 13.9% from the year-ago period.

The company pays quarterly dividends with an annual yield of just under 0.7%.

Bank of America has a Buy rating on SBAC and recently raised its price target on the company from $365 to $425. That implies a potential upside of around 25%.

Crown Castle International (CCI)

Crown Castle International is another communications tower REIT that Bank of America is bullish on.

Headquartered in Houston, Crown Castle has a huge infrastructure portfolio that consists of more than 40,000 cell towers, over 80,000 small cell nodes and about 80,000 route miles of fiber.

The company has a strong appeal to dividend investors. It pays quarterly dividends of $1.47 per share, translating to an annual yield of 3.1%. The dividend has increased every year and management is targeting a 7% to 8% dividend per share annual growth rate going forward.

In the latest earnings report, Crown Castle CEO Jay Brown made it very clear that 5G will be a catalyst for the company’s business in 2022.

“We are focused on supporting our customers as they upgrade their existing cell sites as part of the first phase of the 5G build out in the U.S., which is resulting in record tower application volumes this year and an expected 20% increase in core leasing activity for our Towers segment for full year 2022 when compared to projected 2021 levels,” he said.

Bank of America has a Buy rating on Crown Castle and recently raised its price target on the company to $224, suggesting a potential upside of 19%.

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Final thoughts on 5G stocks

Telecommunication towers with 5G network antennas on top of a building

At the end of the day, keep in mind that there are many ways to capitalize on the 5G rollout. From wireless carriers and communications infrastructure companies mentioned above, to device makers and semiconductor companies, many businesses are well positioned to benefit in the 5G era.

And since each sector provides a unique risk-return profile, it’s important to do your research before putting your money in the market.

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About the Author

Jing Pan

Jing Pan

Investment Reporter

Jing is an investment reporter for MoneyWise. Prior to joining the team, he was a research analyst and editor at one of the leading financial publishing companies in North America. An avid advocate of investing for passive income, he wrote a monthly dividend stock newsletter for the better half of the past decade. Jing holds a Master’s Degree in Economics and an Honours Bachelor of Science Degree, both from the University of Toronto.

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