Digital Realty Trust (DLR -0.07%) is an expensive stock these days; it recently notched an all-time high before retreating somewhat. Generally speaking, the company, one of the largest and most significant data real estate investment trusts (REITs), has been on a fantastic upward journey with its stock price.
Some professionals have clearly been spooked by this meteoric rise. According to data compiled by MarketWatch, three months ago 16 analysts tracking the stock recommended it as a buy, while 10 pegged it as neutral. Currently, though, only 12 remain in the buy camp, with 15 slapping a neutral tag on it. I see no good reason for that skittishness, and I'm holding on to my Digital Realty shares for dear life. Here's why.
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King of the (data center) world
Put simply, data centers -- in which banks of web servers and related equipment are stored, often for corporate clients -- are the real estate of the future. As our data needs grow, as websites and mobile apps continue to proliferate, there's an ever-growing demand for more digital space to house these devices.
So Digital Realty and its cohort of data center REITs are poised for some powerful growth by their very nature. The sector is smaller than you might expect, although it includes important players Equinix, CyrusOne, and mobile telecom hardware specialist American Tower, after its recent acquisition of peer CoreSite Realty,
Digital Realty doesn't have the flashiest fundamentals of this bunch. That honor probably goes to CyrusOne, which has seen its quarterly funds from operations (or FFO, the most important profitability line item for REITS) rise by over 940% across the past decade or so, compared to Digital Realty's 733%. Meanwhile, across the same stretch, Cyrus One beats Digital Realty in quarterly revenue, at a score of 612% to 375%.
But CyrusOne, Equinix, and those other peers can't match Digital Realty in terms of scale, reach, and reputation. The REIT operates over 280 data centers spread throughout 26 countries and six of the world's seven continents.
Meanwhile, Digital Realty's client list reads like a who's who of 21st-century power players. Among its top 20 customers are social media king Meta Platforms, telecom titans AT&T and Verzion, plus JPMorgan Chase, a powerhouse in the data-dependent finance sector. Even rival Equinix is a client, as a major lessee of data center space.
Earlier this month, Digital Realty seriously upped its presence in Africa by announcing its acquisition of a majority in South Africa-based peer Teraco. This company operates seven facilities, which are located in the busy South African cities of Johannesburg, Cape Town, and Durban. The deal also secures direct access to seven undersea cables snaking off the South African coast.
In the REIT's words, the $3.5 million deal "immediately establishes Digital Realty as the leading colocation and interconnection provider on the high-growth African continent." While there's the usual corporate hyperbole behind that assertion, the massive and populous continent inarguably has vast potential for digital take-up.
A delectable digital dividend
So Digital Realty has proven it can harness demand and grow its fundamentals; plus, it's nicely positioned to take advantage of growth in nearly every corner of the world too. What also keeps me loyal to the stock is its dividend, which has been paid without fail since early 2005 and has been raised at least once every year. Equinix and CyrusOne don't have anywhere near that kind of track record.
The constant dividend raises have kept Digital Realty's yield very competitive. At nearly 3%, it not only tops those two fellow data center REITs (Equinix's is basically half that, at 1.5%, while CyrusOne's is currently 2.3%), but it also sits comfortably higher than many investor-darling dividend stocks.
There are few things in life as exhilarating as owning a piece of a top-flight business with a history of solid performance and a future that's going to keep getting brighter. Stocks will come and go in my portfolio, but barring any sudden catastrophe, Digital Realty is going to stay right where it is.
