Amid all of the noise that comes from day-to-day price swings of stocks, it's easy for investors to lose focus if they're not careful. But by insisting on investing in the best stocks with reasonable valuations in industries with promising trends, I believe investors will still see the big picture.
Due to the ever-present role that technology plays in the modern economy, tech-oriented real estate investment trusts (REITs) will almost certainly benefit from strong growth in the years ahead. Let's dig into two tech-related real estate trends that could create meaningful wealth for investors as the years progress.
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1. Data centers
A data center is a physical location or building that stores and computes data. Businesses, individuals, and governments all rely on data centers for the proper functioning of email, websites, online transactions, and more. As technology evolves and the global economy grows, it isn't hard to imagine that data centers will become more embedded into our lives.
This is precisely why analysts anticipate that the global data center market will nearly triple from $187.4 billion in 2020 to $517.2 billion by 2030. Few stocks will benefit from this unstoppable trend as much as Digital Realty Trust (DLR 0.63%). That's because its $42 billion market capitalization and portfolio of more than 285 data centers make it one of the largest data-center REITs in the world.
Digital Realty's leadership in the data center industry explains how its core funds from operations (FFO) per share have compounded at 10% annually since 2005. Despite its massive size, the industry outlook should propel Digital Realty's core FFO per share higher by the mid to upper single digits annually in the foreseeable future.
And due to the stock's 70% dividend payout ratio in 2021, the dividend should grow in line with core FFO per share. That's why I believe Digital Realty has many years of 5% to 6% annual dividend increases left in the tank. Paired with a market-beating 3.3% dividend yield, this is an appealing combination of starting yield and growth potential.
And with the tech sell-off year to date, Digital Realty's stock has plunged 16%. As a result, it is priced at a core-FFO-per-share multiple of just 21.4. That's made this dividend growth stock a smart real estate company to buy right now.
2. Telecom towers
Like data centers, telecom towers are already an important part of the global economy. These structures allow us to perform a variety of activities on our smartphones that we might take for granted, like reading and sending email, surfing the internet, online shopping, and online banking.
Increased mobile data consumption and penetration rates of telecom towers in rural areas are two reasons the global telecom tower market is expected to generate massive growth. Analysts are predicting that the industry will nearly triple from $39.5 billion in 2018 to $114.1 billion by 2026.
With a $120 billion market cap, pandemic-proof American Tower (AMT -0.26%) is the largest telecom tower stock in the world. That status has allowed its adjusted funds from operations (AFFO) per share to grow 13.8% annually over the last decade.
And with that encouraging industry forecast, American Tower should continue to grow AFFO per share annually in the high single digits to low double digits over the medium term. Along with its dividend payout ratio of just 54% in 2021, this is probably why the company is confident enough to be targeting 12.5% dividend growth in 2022. Considering American Tower's 2.2% dividend yield, this is an attractive blend of income and growth prospects.
And similar to Digital Realty, the stock has been lumped into the tech sell-off this year. With shares down 10% year to date, American Tower is trading at around $260 per share. For a stock with this quality and growth profile, that makes it a solid buy.
