Real estate investment trust (REIT) Equinix (NASDAQ:EQIX) had a gangbuster first half in 2019, with its shares rising a huge 43% in the six-month span according to data provided by S&P Global Market Intelligence. Not only was that gain huge on an absolute level, it was also impressive relative to the S&P 500 index and the broader REIT group (using Vanguard Real Estate ETF as a proxy), which both gained around 17%. The interesting thing is that nothing particularly exciting happened at Equinix.
Equinix owns data centers. That's a hot sector in the market, with companies increasingly moving toward cloud computing. This is a long-term trend that appears to have many more years to run. The REIT is something of a Wall Street darling because of this, with the stock having risen around 650% over the past decade.
The first half of 2019 didn't actually contain any startling events. That said, Equinix witnessed a steep decline toward the end of 2018, along with the rest of Wall Street. Some of the gain in 2019 is likely related to a bounce back from that drop. But that doesn't explain all of the price gain. The rest is simply a testament to the continued progress the REIT is making in serving an increasingly important market niche.
For example, in May, Equinix announced that it intended to open 12 new data centers in 2019, with expansions planned at 23 existing assets. Those capital investments add up to nearly $2 billion in growth spending. Far from overextending itself, the company also announced that S&P had upgraded the company to an investment-grade credit rating. So Equinix is, basically, growing and getting financially stronger at the same time. And the REIT increased its dividend by about 8% in February, too, so it is rewarding investors well as it expands.
There's no question that Equinix operates in an attractive real estate niche. Investors are clearly aware of that fact, which helps explain the swift first-half advance and miserly 1.9% dividend yield. Investors looking for income should probably skip this REIT. However, investors interested in the cloud space might want to take a closer look. It is a way to buy a cloud stock without buying a computer stock. That said, any investor looking at Equinix should carefully consider its valuation before jumping aboard -- it trades at a hefty 23 times its price to its projected 2019 adjusted funds from operations.