American Tower (AMT -0.27%) has hit a speed bump in recent years. The communication infrastructure operator's adjusted funds from operations (FFO) slowed considerably last year, rising only 2.1% for the full year after growing at a double-digit pace for years. As a result, the company's dividend growth rate has also slowed, from a 10% annualized rate at the end of last year to 3.2% annualized in the second quarter. That slowdown has weighed heavily on its shares, which are down about 30% from its peak three years ago. This decline pushed up its dividend yield to nearly 3%, more than double the S&P 500's yield.

The infrastructure REIT initially expected the sluggishness to continue in 2024 because of persistent headwinds. However, the momentum has shifted over the past several months, and the REIT expects to grow much faster this year.

Hitting the accelerator

American Tower's growth engine continued to reaccelerate in the second quarter. The REIT's adjusted FFO grew by about 13.5% to $1.3 billion, or $2.97 per share. That extended the momentum it enjoyed in the first quarter, when its adjusted FFO surged 10% after declining 2.1% in the final period of 2023. Several catalysts drove that strong showing, including positive collection trends in India, 5% organic growth in its U.S. and Canadian tower segment, and the second best quarter for new business at its CoreSite data center platform.

The company also generated strong free cash flow during this period. It grew 27.5% to $1 billion, easily covering its dividend outlay of $756.7 million. That enabled the REIT to retain some cash to strengthen its balance sheet further. American Tower ended the second quarter with a 4.8 leverage ratio. That's an improvement from 5.0 in the first quarter and 5.2 at the end of 2023. The REIT has been working to reduce leverage and improve its financial flexibility.

The REIT expects further balance sheet improvements in the coming quarters. It agreed to sell its operations in India to an affiliate of Brookfield Asset Management earlier this year. It expects to receive between $2 billion and $2.5 billion at closing, which should occur in the fourth quarter. That deal will offload a unit that has caused it trouble in the past while enhancing its financial flexibility.

Growing optimism

American Tower's strong first-half showing and positive outlook enabled it to boost its full-year forecast. The REIT now expects its adjusted FFO to be between $4.9 billion and $5 billion this year, a roughly 7.6% increase from last year at the midpoint. That's up from its initial outlook that adjusted FFO would rise by about 4.8% at the midpoint.

The company also continues to invest in its future growth. It expects capital spending to be between $1.6 billion and $1.7 billion this year, up slightly from its initial forecast. That spending includes constructing 2,500 to 3,500 communication sites around the world, including 800 in India, and $480 million for data center development projects.

Those investments position American Tower to continue growing its cash flow. The company believes that strong demand for communications infrastructure from trends like 5G, AI, and cloud computing will drive "sustained growth with higher quality of earnings for our shareholders over the long term," commented CEO Steven Vondran in the second-quarter earnings release.

Back to growth mode

American Tower had been growing briskly before hitting a speed bump last year due to headwinds from India, interest rates, and other factors. However, those headwinds are fading, which is driving accelerating earnings growth and balance sheet improvements, and the REIT could soon turn its dividend growth engine back on. The payout is down from its peak at the end of last year and flat over the past several quarters. American Tower's growth resurgence makes it look like a compelling dividend stock to buy right now, especially considering its beaten-down share price.