An increasingly connected world continues to demand lower latency from its devices. That demand sets up a positive situation for investors in 5G stocks. Companies that can supply services and products that answer that demand stand to grow very rapidly.
In fact, the 5G services sector is expected to grow at nearly 60% annually between this year and 2030. That equates to a doubling in market value every 1.2 years throughout that period.
Investors in 5G stocks will see their capital grow at exceptional rates. It’s a matter of identifying strong firms in the sector and remaining patient enough to reap the rewards.
Ericsson (ERIC)
Ericsson (NASDAQ:ERIC) is a Swedish telecommunications networking stock in firm providing equipment and services to network operators and one of the more solid 5G stocks out there. The company recognizes the opportunity it has to provide networks the ability to deliver data 100 times faster than 4G does.
Ericsson is a relatively inexpensive investment costing less than $5 per share. The company is not large but its revenues are growing moderately and increased by 3% in Q2.
Ericsson is a very global firm and it opportunity in 5G means that it develops in spurts in certain geographies. A few years ago it was making strong efforts to move into the U.S. as government backlash against Huawei opened opportunities stateside.
In Q2 the firm’s U.S. sales declined while it simultaneously grew in India offsetting the decline.
Enterprise sales were a particularly bright spot for the firm with sales growing by 20%. Ericsson is smaller and riskier than many other 5G plays as it continues to search for stable profitability.
Investing in ERIC includes a nice dividend that offsets some of that risk and the small size of the company also helps to make its growth narrative more attractive.
American Tower REIT (AMT)
American Tower REIT (NYSE:AMT) stock represents an adage that investors hear increasingly more often these days: Invest in assets, not liabilities.
The assets for discussion in this case are the leasing rights to cellphone towers. American Tower REIT provides income and potential appreciation to investors through that business model.
Let’s discuss the income side of that equation first because as a REIT AMT stock can be a bit confusing. When I say confusing I’m referring to the payout ratio.
The general rule of thumb is that a healthy dividend has a payout ratio somewhere between 35% and 55%. That means up to 55% of earnings get returned to investors as dividends. REITs however, are obligated by law to return at least 90% of their earnings as a dividend.
Thus, American Tower REIT’s payout ratio of 3 isn’t unhealthy and its 3.6% yield is comfortable. It’s actually stable, having last been reduced more than a decade ago.
The payout ratio calculation is different for REITs and those interested in the mechanics should read this article. Overall, AMT is among the 5G stocks that provide access to assets in 5G for investors.
Crown Castle (CCI)
Crown Castle (NYSE:CCI) is another cell tower REIT stock investors ought to consider. It offers many of the same general benefits that AMT does. Let me start by expanding upon the idea that REIT dividends aren’t as they seem by explaining Crown Castle’s.
Its payout ratio of 1.57 looks entirely unsustainable at first blush. Any investor would logically conclude that no firm can pay 157% of earnings back to investors as dividends for long. It would cause the business to shrink indefinitely and ultimately collapse.
What we really want to look at here is the FFO payout ratio. It’s a simple calculation of dividends paid/funds from operations that gives a more accurate reading of dividend health for REITs.
In Crown Castle’s case, it stands at 82.8% presently. That’s in the healthy 75% to 85% range for REITs making CCI another asset-first investment for income investors in the 5G space.
AT&T (T)
AT&T (NYSE:T) is one of the largest and best-known 5G networks. Its stock is bound to come up in discussions about the 5G opportunity. Its dividend is almost certainly bound to enter those discussions as well which is where we should start because it is one of the primary reasons to invest in T shares.
That dividend is the only realistic reason investors should consider AT&T. The actual stock returns have been abysmally low over the past decade at 1.76% annually. However, the dividend yields 7.85% presently and makes those returns effectively much higher.
The dividend was reduced in 2022 but the Q2 payout ratio was a healthy 47%. AT&T is a sound choice for income investors who have the patience to stick with the company as it finds its footing on the promise of a 5G boom.
Take the income, be patient, and hope that the stock can appreciate in time.
Qualcomm (QCOM)
Qualcomm (NASDAQ:QCOM) is primarily known by investors as a chip stock. Of course, semiconductors are in everything including 5G-enabled devices.
The company’s Snapdragon 5G platforms are comprehensive meaning its chips are found in everything 5G from modems to antennas.
Qualcomm provides chipsets across the technology sector so it isn’t a pureplay 5G firm by any means. However, that means it is an investment that broadly benefits form the incoming opportunities throughout the tech sector.
Whether that’s IoT, AI, augmented reality or anything else, Qualcomm is likely touching that opportunity in some form.
Investors are right to be concerned about Qualcomm’s latest earnings release. Revenues fell by 23% and earnings dropped 52%.
Handset sales drive the majority of the firm’s business and consumers are reticent to buy phones at the moment. That said, analysts see share prices increasing by $30 beyond their current $109 price. There’s a 2.9% dividend for those who make that bet right now.
Cisco (CSCO)
Cisco (NASDAQ:CSCO) is a networking form with obvious connections to the growth potential in 5G stocks. It’s also lagged behind the AL-led wave of growth and has been a laggard relative to the Nasdaq.
In other words, it’s arguably undervalued given all of the positives underpinning the stock. 5G growth is a clear opportunity for the firm and its ability to sell networking equipment.
I don’t necessarily believe that Cisco should increase dramatically in price soon. It’s fairly valued relative to historical prices based on earnings. However, CSCO shares offer exposure to tech in general, a beta that is low for its sector and generally moderate, and a dividend yielding 3%.
Cisco plainly did well per its most recent earnings report. Sales increased by 16% and EPS jumped up by 43%.
The rest of the tech sector is enamored with AI and the tremendous growth it has provided a few firms. I believe it has also overlooked the other tech winners who haven’t suffered a contraction including Cisco.
Marvell Technology (MRVL)
Marvell Technology (NASDAQ:MRVL) sells chips and hardware into several verticals including 5G. The stock is falling as I write this even though revenues were $1 million higher than expected and earnings 1 cent better than anticipated.
The reaction is because MRVL shares have risen by 55% year-to-date while the sector has grown by 39%. Given that Marvell Technology didn’t blow expectations out of the water when others have, investors may be punishing the firm.
That sets up an opportunity based on the consensus views of Wall Street which has the shares valued at more than $70 while trading at $53. Investors have arguably grown greedy in relation to all things AI. They seem to be expecting every firm to provide Nvidia (NASDAQ:NVDA) type gains because of the general AI opportunity. It doesn’t work like that but Marvell Technology is certainly leveraging that opportunity as the 5G opportunity.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
