The Motley Fool’s Take
American Tower 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, 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
From G.L. of Sherwood, Ore.: What’s the difference between a merger and an acquisition?
The Fool responds: 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.
From T.N. of Buffalo Grove, Ill.: How can a stock start trading in the morning at a much higher or lower price than it closed at the day before?
The Fool responds: 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.
The Fool’s School
Together, we’re all forking over tens of billions of dollars in “junk fees,” says Federal Trade Commission chair Lina Khan, calling them “unexpected and unnecessary.” The FTC also called them “hidden and bogus.”
They may appear on bills for cable or internet service, on charges for lodging or on bank statements. (Many banks charge “inactivity” fees, for example, for no apparent reason.) Surprising fees also appear when you’re ordering food delivery or buying concert tickets, and even when you’re buying a home.
Marketing professor Jeff Galak at Carnegie Mellon University’s Tepper School of Business has referred to “fee-flation,” noting, “Fees are a way to raise prices without raising prices.” Hidden fees can also make it hard for consumers to shop around for best prices.
Consumers needn’t despair, thinking that nothing can be done about excessive or junk fees. The FTC, joining with other entities — such as the Consumer Financial Protection Bureau, the Federal Communications Commission, the Department of Housing and Urban Development and the Department of Transportation — is working to prohibit many junk fees.
Indeed, the FTC recently rolled out a proposed rule to prohibit many “hidden and falsely advertised fees.” It would, in the words of the FTC, “ban businesses from running up the bills with hidden and bogus fees, ensure consumers know exactly how much they are paying and what they are getting, and help spur companies to compete on offering the lowest price. Businesses would have to include all mandatory fees when telling consumers a price, making it easier … to comparison shop for the lowest price.”
The FTC estimates that, with the proposed rule in place, consumers may save more than 50 million hours annually in comparing prices for live event tickets and short-term lodging alone.
The proposal is not yet law, and the FTC is seeking comments from consumers. If you’d like to contribute your thoughts, visit FTC.gov and click on “Submit a public comment.”
My Dumbest Investment
From S.C.: My most regrettable investment move was not investing sooner. I waited until my mid-40s to start seriously investing in the stock market.
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.
Who Am I?
I trace my roots back to 1937, when one of my founders, who’d acquired a recipe from a New Orleans French chef, began selling baked goods to local grocery stores in Winston-Salem, North Carolina. I’ve been bought and sold multiple times. A “Hot Light” and an app let consumers know when my offerings are fresh and hot. I rake in more than $1.6 billion annually and sport a recent market value of $2.2 billion. You can buy my treats at nearly 12,000 locations in more than 30 countries. I hope your eyes don’t glaze over reading this. Who am I?
Don’t remember last week’s trivia question? Find it here.
Last week’s trivia answer: Airbus
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