For quite some time, one of my favorite specialty real estate investment trusts has been Digital Realty Trust (NYSE:DLR). Although it focuses on the not-particularly exciting segment of data centers, its fundamental performance over the past few years has been anything but boring. Good top- and bottom-line growth over time, both organic and acquisition-driven, have made the company a top name in its business.
This growth has provided more cash for the company's dividend, which it just raised for the 13th year in a row. Digital Realty Trust is now more than halfway to Dividend Aristocrat status, and I fully expect it to go the distance.
Trust in growth
A data center is a facility where an organization can park IT operations such as the servers that run its website. This is basically a requirement for any company these days, so it's no wonder that an estimate from networking equipment maker Cisco Systems states that global IP traffic will rise at a compound annual growth rate of 22% between 2017 and 2020 alone.
A handful of specialty REITs have sprung up over the years to help satiate this demand, but with a total of five stocks the pure-play data center space is fairly small compared to other specialties. The largest player in terms of market capitalization and revenue is Equinix (NASDAQ:EQIX), and not far behind it at No. 2 is Digital Realty Trust.
Buoyed by that strong demand, Digital Realty Trust, Equinix, and its peers are doing well as a group, posting encouraging growth rates on both the top and bottom lines. I would say, though, that Digital Realty Trust is first in class -- and one big reason for this is the dividend.
As the oldest company by far out of the quintet, it's been paying a quarterly distribution since 2005. And it's reliably raised that at least once every year. Over that 13-year period, it's climbed from just under $0.16 per share to $1.01. And this isn't too burdensome on the finances; in its most recently reported quarter, the REIT's "core" (adjusted) funds from operations came in at $1.55 per share.
Digital Realty Trust's dividend boasts an attractive yield, too, at nearly 4%. That puts it more or less in the neighborhood of rivals CyrusOne and CoreSite Realty, yet well above big daddy Equinix's rate of slightly more than 2%. The top yielder, QTS Realty Trust, pays out at nearly 5%, but this high figure is due mainly to a queasy stock price drop in the wake of a flip into the red on the bottom line in its Q4.
There's every reason to believe Digital Realty Trust's dividend raise habit will continue into Aristocracy. The volume of data will almost certainly keep rising well past the next decade, for a host of reasons -- the proliferation of smartphones, the anticipated spread of unlimited data storage options, the rise of ever-more-automated vehicles, and the Internet of Things (IoT), etc. etc. etc.
And as that volume of data climbs, so will the need to store and transmit it. Data centers will continue to provide the infrastructure for this, with data center REITS benefiting from the demand. This is particularly true for Digital Realty Trust, and I'm convinced that it'll join the elite ranks of Dividend Aristocrats around 2030.