Digital Realty Trust (DLR 1.83%) has been one of the best performing real estate stocks in recent history, with a total return of over 2,500% in just 17 years as a public company. In this Fool Live video clip, recorded on Oct. 25, Fool.com contributors Matt Frankel, Jon Quast, and Jason Hall discuss the company and why it could be worth a look right now.
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Jason Hall: What is Digital Realty Trust? It's one of the largest data center operators in the world, and it's a top 10 U.S. REIT. It's one of the largest real estate businesses. By and large, it owns the data centers, and at leases, bandwidth or computer space in the data centers it has about 300 of them. One of the really important things about the business is actually not on this particular slide, but is important is that physically where is it located and it's in 40 or so of the largest metropolitan areas in the world. Physical proximity actually does matter with these data centers, so that's really important.
Dividend yield is around just under 3%, which is certainly on the lower end of its history, so there is a lot of investors sentiment that's positive about the business. It's grown the dividend every year for I think 16 years at this point. I think it's on track to be a Dividend Aristocrat. I think the one risk to think about with data centers is, particularly this business, there's so much capacity being added right now. We could get to a point where there's too much capacity in the next few years and that could be a challenging environment to operate. It could be an opportunity for some of these guys though, because they might actually be able to buy some distressed assets at discounted prices, but I think it's a risk to consider. Matt.
Matt Frankel: Yeah, I was really glad to see you added this one. There are two major data center players. There's Equinix (EQIX 0.14%) and Digital Realty. Those are the two big ones by far. Equinix doesn't own all of its properties. Equinix is actually one of Digital Realty's biggest tenants.
Frankel: They own about half of their properties and usually a subleasing model with the rest. Same with number three, which is Cyxtera (CYXT 19.93%), the number three data center operator.
Hall: Recent SPAC.
Frankel: Yeah, which just went public by SPAC and is also on Digital Realty's top 20 tenants list. They're like the data center operator for the other data center operators. It's a really interesting business. It's one of my biggest real estate stocks in my portfolio. I think it actually is my second biggest REIT holding and I own like 10 REITs, so that's something.
Quast: I like it even though the dividend yield has come down. Three percent is still nothing to sneeze out. That's still a very nice high-yield dividend.
Hall: These guys know how to run the business. Their ability to grow the payout is pretty steady.
Frankel: Their long-term returns have been just phenomenal too. They went public in 2004 and I think they've returned about five times what the S&P has since then. If you're returning five times the S&P's return over 16 years, I really don't care what dividend you're paying me to be honest.
Hall: You know what you're doing.