We recently published a list of 10 Best Dividend Stocks Yielding at Least 7% According to Analysts. In this article, we are going to take a look at where Crown Castle Inc. (NYSE:CCI) stands against other best dividend stocks yielding at least 7% according to analysts.
Investors focused on dividends should be cautious about simply selecting stocks with the highest yields, as this approach can be risky. An unusually high yield often signals potential trouble, since dividend yields rise when stock prices fall. In many cases, an exceptionally high yield may be the result of a stock experiencing a significant decline in value. When a company’s share price drops sharply, it raises concerns about whether its dividend payments can be maintained at their current levels.
Dan Lefkovitz, a strategist for Morningstar Indexes, made the following comment about extremely high yields in the firm’s recent report:
“It’s really critical to be selective when it comes to buying dividend-paying stocks and chasing yield. Looking for the most yield-rich areas of the market can often lead you into troubled areas and dividend traps—companies that have a nice-looking yield that is ultimately unsustainable. You have to screen for dividend durability and reliability going forward.”
However, this has not always been the case. Many companies have maintained strong dividend yields along with consistent dividend growth histories. In addition, high yields are not inherently negative. In fact, dividend yield is a key factor in dividend investing, as it indicates the income an investor can expect relative to the stock’s price.
To fully capitalize on high-yield stocks, investors should also evaluate other metrics such as cash flow, payout ratio, and dividend growth. When these fundamentals are strong, high-yield stocks can remain attractive. Some studies highlight the long-term benefits of high-yield stocks, suggesting that as dividend yields rise, overall returns tend to increase while risk declines. Research from Hartford Funds, which considered annualized standard deviation as a measure of return volatility, found that between December 1969 and March 2024, high-dividend portfolios achieved an annualized return of 12.3%, compared to 10.5% for mid-dividend portfolios and 9.7% for low-dividend portfolios. The respective annualized standard deviations were 14.1%, 16%, and 20.8%, indicating that higher-yield portfolios experienced lower historical risk.
READ ALSO: 10 Best Foreign Stocks With Dividends For Passive Income
In addition, a company’s dividend payout ratio serves as an important indicator of its capacity to manage its dividend policy. Firms that only just cover their dividends or allocate most of their earnings to dividends could face risks due to competitive pressures, as their cash flow might not be sufficient to meet operational needs. Companies with high payout ratios may experience slower growth in the future, which could affect both their stock price appreciation and their ability to increase dividends. A study by Nuveen, covering the period from December 2003 to December 2023, found that companies with the highest payout ratios have not been the strongest long-term performers. In contrast, companies with medium to medium-high payout ratios tended to perform better over time. This suggests that companies with strong balance sheets and solid fundamentals make for more promising dividend investments in a portfolio.
Our Methodology
For this list, we screened for dividend stocks with yields higher than 7% as of February 5. From this group, we further refined our selection criteria by identifying stocks with a projected upside potential of over 6% based on analyst price targets, as of February 5. The stocks are ranked according to their upside potential. We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A close-up of an array of cell towers on a distant hilltop.
Crown Castle Inc. (NYSE:CCI)
Upside Potential as of February 5: 9.04%
Dividend Yield as of February 5: 7.02%
Crown Castle Inc. (NYSE:CCI) is a Texas-based real estate investment trust company that focuses on providing infrastructure for wireless communication. The company, which primarily focuses on data infrastructure like cell towers, has encountered challenges in recent years due to higher interest rates and tenant issues, impacting its growth. As a result, it expects a decline of approximately 8% in its adjusted funds from operations (FFO) this year. In the past year, the stock has declined by nearly 15%.
In response to these challenges, Crown Castle Inc. (NYSE:CCI) has adjusted its strategy. It has shifted its attention to capital projects with higher returns, leading to a reduction in growth spending plans. In addition, the company has initiated a strategic review of its fiber business. These steps are expected to improve its cash flow and returns, allowing it to better support organic growth opportunities with internal funds.
The company’s performance was also highlighted by Columbia Threadneedle Investments in its Q3 2024 investor letter. Here is what the firm has to say:
“The fund held two out-of-benchmark positions in Real Estate Investment Trust (REIT) companies American Tower Corporation and Crown Castle Inc. (NYSE:CCI). REITs have historically performed well during periods of declining interest rates due to lower borrowing costs. The two companies performed very well during the third quarter after the Federal Reserve cut interest rates 50 basis points in September, with the expectation for additional cuts soon.”
Crown Castle Inc. (NYSE:CCI) currently offers a quarterly dividend of $1.565 per share and has a dividend yield of 7.02%, as of February 5. The company returned $681 million to shareholders through dividends in the most recent quarter, which makes CCI one of the best dividend stocks on our list.
As of the end of Q3 2024, 34 hedge funds tracked by Insider Monkey held stakes in Crown Castle Inc. (NYSE:CCI), compared with 38 in the previous quarter. The overall value of these stakes is more than $1.24 billion.
Overall, CCI ranks 5th on our list of best dividend stocks yielding at least 7% according to analysts. While we acknowledge the potential for CCI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CCI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.