Investing in Communications

American Tower (NYSE: AMT) is a specialist in broadcast communications infrastructure. It’s looking attractively valued at recent levels, too.

American Tower’s business is robust, and it just keeps growing.

Top-line sales are up by around 49% over the past five years. Free cash flow took a dip in 2022 due to slower prepayments from major customers – understandable amid an inflation-fueled economic crisis.

The diminished cash flow was still positive to the tune of $1.8 billion in that softer year.

American Tower runs an ultrareliable business tied to multiyear contracts, and its services should be in demand as long as wireless broadcasting and networking are a thing – in other words, potentially forever. Yet its shares have been growing relatively slowly for five years while the business has kept growing.

The stock offers a generous dividend, recently yielding 3.3%.

That’s not surprising, since American Tower is a real estate investment trust (REIT), required to distribute at least 90% of its taxable income in the form of dividends.

As this cash machine grows, American Tower will continue to raise its dividend payouts and stuff billions straight into shareholders’ pockets. (The Motley Fool owns shares of and has recommended American Tower.)

Ask the Fool

Q. What’s the difference between a merger and an acquisition? – G.L., Sherwood, Oregon

A. Both involve the joining of two companies, but there are some key differences. In general, two companies merge when they’re somewhat similar in size, together forming a new company. It will be a new legal entity, typically with a new name and ticker symbol.

With an acquisition, a larger company typically buys and takes control of a smaller one.

The purchased company ceases to exist on its own, and no new company is formed. Acquisitions happen much more frequently than mergers. While mergers are friendly and a joint effort, acquisitions can be hostile.

Famous mergers include Exxon and Mobil (forming Exxon Mobil) and Citicorp and Travelers Group (forming Citigroup).

Famous acquisitions include Amazon.com acquiring Whole Foods Market, and Walt Disney buying Pixar. Some acquisitions, such as when CVS Health bought Aetna, are referred to as mergers, in large part to honor the acquiree and let it save face. There are some key differences in how the business world uses the terms, too.

Q. How can a stock start trading in the morning at a much higher or lower price than it closed at the day before? – T.N., Buffalo Grove, Illinois

A. There was likely some news released after the market closed that caused buy or sell orders to pile up all night.

If Buzzy’s Broccoli Beer (ticker: BRRRP) closes at $50 on Tuesday but opens on Wednesday morning at $43, it might have announced the loss of a major customer or posted a disappointing earnings report.

If BRRRP opens trading much higher, it might have announced some good news – or perhaps it’s being acquired at a premium price.

My Dumbest Investment

My most regrettable investment move was not investing sooner. I waited until my mid-40s to start seriously investing in the stock market. – S.C., online

The Fool responds: We’re glad you learned this lesson and at least got started in your 40s.

To see the power of starting early, consider this example: Imagine a 25-year-old and a 45-year-old, both of whom want to retire at age 65.

If the 45-year-old invests $10,000 per year for 20 years and earns an average annual return of 8%, he will end up with more than $450,000. But if the 25-year-old invests just $5,000 per year, earning 8%, she will end up with $1.3 million after 40 years.

Note that each of them invested a total of $200,000.

The stark difference is simply because the younger investor had much more time in which her money could grow.

Your earliest-invested dollars are your most powerful. It’s also worth noting that you can amass great sums while investing relatively modest ones if you’re diligent and stick to your plan.

The U.S. stock market has averaged annual gains of close to 10% over many decades (excluding inflation), so it’s fair to hope for 8% average returns, though they’re not guaranteed. Investing in a low-fee, broad-market index fund can help you earn roughly the same return as the overall market.