Digital Realty Trust (DLR +0.29%)is a real estate investment trust (REIT) that owns and operates more than 280 sites in 26 countries on five continents, and it's been sharing the wealth for a good long time now, with promising prospects for more ahead.
The Austin, Texas-based company is one of the nation's largest REITs, with a market cap of about $44 billion, and it has been a solid performer, providing shareholders with 16 straight years of dividend increases from this top-shelf real estate investment.
The performance is the result of growth for data centers, which have expanded from simple storage facilities to cloud-computing nodes and co-location sites for businesses large and small around the world. It's been a very good business.
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Digital Realty went public in 2004 at $12 a share and has since provided a total return of about 2,500%. If you had invested $10,000 in this stock then and kept it, it'd be worth about $130,000 now, and if you count the dividends too, you'd be up $259,930.
And if you invested $10,000 in Digital Realty at this point in 2012, you now would have about $34,500 in total return, or about $23,150 in the stock itself not counting dividends. That total return is good for a compound annual growth rate (CAGR) of 13.3%, about the same as that of the S&P 500 over that time. Nothing wrong with that, and DLR also has increased its dividend 15% in the past three years alone.
DLR stock currently pays out $1.16 per share in quarterly dividends -- yielding about 3% based on a share price of $156. The company's payout ratio -- its dividend payment as a percentage of its earnings -- is 66.38% based on 2022 estimates, modest by REIT standards. And DLR carries with it a record of 11% CAGR in core funds from operations (FFO) -- a key measure of REIT profitability --- since 2005. While there are higher yields available in the REIT industry, DLR offers balance sheet strength and a growing business to steadily reward investors with predictable payouts in a sector that should outperform most in the years immediately ahead.
Rough start to the year but earnings are poised to rise
DLR's share price has fallen about 12% this month following news of its investment in a South African data-center operator and the overall stock market decline in the new year. The decline followed an 18% run-up after the company's third-quarter report on Oct. 26, which showed that earnings per share (EPS) for the quarter of $0.44 crushed consensus estimates of $0.19 to $0.25. In the coming year, analysts expect earnings to rise some 7% to about $6.95 per share.
DLR does face competition from privately held centers that have attracted huge investment and from publicly traded giants like American Tower, which recently bought its own data-center REIT, CoreSite. There are also three other data-center REITs -- Iron Mountain, Equinix, and CyrusOne (which is in the process of being acquired by Blackstone). And there's a newcomer, Switch, in the process of becoming a REIT.
Digital Realty is charging ahead, however, pushing out its PlatformDIGITAL service, aimed at helping global enterprises integrate and expand their own data storage, control, and networking needs while it extends its reach with investments like the South African deal. Look for more from this accomplished player in a dynamic, surging industry.
