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This $2.5 Billion Acquisition Will Enhance These High-Yielding Dividend Stocks

Motley Fool - Tue Jan 9, 4:07AM CST

American Tower(NYSE: AMT) has agreed to sell its cell tower business in India to an affiliate of Brookfield Asset Management(NYSE: BAM). The leading real estate investment trust (REIT) focused on data infrastructure will receive about $2.5 billion of cash in the deal.

The transaction will allow American Tower to strengthen its balance sheet while enabling Brookfield Asset Management and its infrastructure-focused affiliate Brookfield Infrastructure(NYSE: BIPC)(NYSE: BIP) to deploy capital into a deal that should grow their cash flow. As a result, the transaction should enhance all three high-yield dividend stocks.

Strengthening its financial foundation

American Tower's telecom tower business in India has been more of a liability in recent years. The company's largest tenant in the country, Vodafone Idea (Vi), hasn't been making full rental payments since last March. That led the infrastructure REIT to launch a strategic review of that business.

It has since concluded that review, opting to sell the assets to Brookfield. American Tower expects to receive up to $2.5 billion in the deal ($2 billion plus a ticking fee that started accruing last October and will continue doing so until the closing date). The company also retains the rights to the optionally convertible debentures it received from Vi as an IOU for tower rent it still owes the REIT. The tower operator is also entitled to receive future payments related to existing receivables from the tower portfolio.

American Tower will use the cash proceeds from the deal to repay debt. The REIT has focused on deleveraging its balance sheet over the last few years to pay down debt related to a couple of large-scale acquisitions it made in 2021, including buying data center REIT CoreSite Realty. It had gotten its leverage ratio down to 5x at the end of the third quarter, putting it at the top end of its 3x-5x target range.

Falling leverage will put the REIT's 3.2%-yielding dividend on a firmer foundation. American Tower currently plans to keep its payment level flat in 2024 after growing it by 10% last year. That will enhance its financial flexibility. The REIT hopes to resume dividend growth once its balance sheet improves and earnings growth rate reaccelerates.

Putting cash to work

Brookfield Asset Management is acquiring American Tower's telecom towers in India through its affiliate, Data Infrastructure Trust (DIT). That entity owns its other telecom tower companies in India (Summit Digitel and Crest Digitel).

Brookfield's infrastructure affiliate, Brookfield Infrastructure, led the acquisition of the initial tower business in India, buying a 130,000-tower portfolio from Reliance Industries in 2019 for $3.7 billion. It has since expanded that business to more than 175,000 towers. Brookfield will now become the largest tower operator in the country by acquiring American Tower's 78,000 sites, pushing its total to more than 250,000 in the country.

The company's larger scale in the country should enable it to reduce costs and increase its cash flow. The acquisition will also give it more opportunities to add other tenants to those existing towers to boost its returns and cash flow.

The acquisition allows Brookfield to deploy more capital into a sector it knows very well. That should enable the asset manager and its infrastructure affiliate to grow their earnings. Earnings growth will support both entities' dividends, which they expect to continue growing.

Brookfield Asset Management currently pays a 3.3%-yielding dividend. The asset manager expects to grow that payout at a 15% to 20% annual rate in the coming years, powered by similar growth in its fee-related earnings as it deploys investor capital into new investments so it can start collecting management fees.

Meanwhile, as an investor in DIT, Brookfield Infrastructure will benefit from the growth of that business as it acquires additional towers from American Tower. The growing cash flow from that entity's expanding tower portfolio will give it more cash to pay dividends. Brookfield Infrastructure currently expects to grow its 4.4%-yielding dividend by 5% to 9% per year.

A win-win deal for these dividend-paying stocks

American Tower is unloading its troubled tower portfolio in India. The deal will enable it to reduce debt so it can strengthen its financial foundation. That should put its dividend on firmer ground so that the REIT can return to growing its payout in the future.

Meanwhile, the acquisition will enable Brookfield to deploy more capital to bolster its tower portfolio in the country. That will help Brookfield Asset Management grow its fee-related earnings, supporting its plan to rapidly increase its dividend.

The acquisition should also enhance Brookfield Infrastructure's cash flow, giving it more power to increase its higher-yielding payout. Because of that, the transaction is a big win for dividend investors since it should enhance the payouts of all three companies.

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Matthew DiLallo has positions in American Tower, Brookfield Asset Management, Brookfield Infrastructure, and Brookfield Infrastructure Partners. The Motley Fool has positions in and recommends American Tower and Brookfield Asset Management. The Motley Fool recommends Brookfield Infrastructure Partners and recommends the following options: long January 2026 $180 calls on American Tower and short January 2026 $185 calls on American Tower. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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