Digital Realty Trust
Click to Enlarge Dividend Yield: 6.8%
And finally, we come to Digital Realty Trust (DLR), a REIT that specializes in data centers.
2013 has been a rough year for REITs in general, but DLR has been beaten like the proverbial red-headed stepchild, down more than 30%. Earlier in the spring, hedge fund Highfields Capital made a very public short bet on Digital Realty, noting that the REIT was facing new competition from the likes of Amazon (AMZN), Microsoft (MSFT) and Google (GOOG) among others.
Digital Realty’s quarterly earnings seemed to confirm this; earnings came in below expectations, and funds from operations were actually down year-over-year. And management has lost serious credibility with Wall Street, as they fumbled an announced accounting change (which actually brings the REIT more in line with GAAP) and have generally done a poor job of communicating.
Yet this bearish story doesn’t seem to fit reality. The REIT’s two primary competitors — CoreSite Realty (COR) and DuPont Fabros Technology (DFT) — have been reporting healthy FFO increases, indicating that the macro environment cannot be as bad as Highfields seems to think. And Digital Realty has continued to grow its portfolio, with lease signings through the first three quarters of 2013 already higher than full-year 2012.
Digital Realty is a very different type of REIT than O or NNN. It operates in a more volatile sector and lacks their long track records. But as an investor, you’re also getting paid handsomely to accept these risks. Digital Realty sports a current yield of 6.8%, and the payout has been growing steadily.
Again, Digital Realty is more speculative than O or NNN. But at current prices, I would hardly call it risky.
Recommendation: Buy DLR below $52 per share. At time of writing, the shares traded for $46.
Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he was long O and NNN. Click here to receive his FREE 8-part investing series that will not only show you which sectors will soar, but also which stocks will deliver the highest returns. This series starts Nov. 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.