There’s no such thing as a sure bet in the stock market, but investors flock to real estate investment trusts (REITs) because there’s at least a sliver of a guarantee involved.
In case you aren’t familiar with this breed of investments, REITs have two defining features: They manage “groups of income-producing properties,” as Investorpedia put it, and they are required to distribute at least 90% of taxable income via dividends.
Because of this distinction, analyzing REITs involves slightly different metrics than standard stock analysis (like looking at net asset value and funds from operations).
But investors can still use mega-trends to find companies that are perfectly poised to grow their funds from operations and thus keep a delicious payout coming consistently.
DLR Stock Is Where Tech Meets Dividends
A prime example of such a REIT is a company called Digital Realty Trust (DLR). The company does exactly what you would think it does: It owns tech-related real estate — namely, data centers. DLR data centers located throughout North America, Europe, Asia and Australia, and it supports more than 600 firms.
These aren’t small, no-name firms either. As Matthew Frankel over at The Fool recently pointed out:
“While there is a broad array of tenants, Digital Realty’s top 10 tenants made up 34% of the company’s rental income as of March 31, and the list is an impressive “who’s who” of the tech sector. Included among the top 10 are industry heavyweights CenturyLink, IBM, Facebook, and AT&T. In other words, Digital Realty’s biggest customers are strong, stable companies with growing data needs.”
And “growing data needs” is a great way to sum up why DLR is such a solid bet. For proof of just how hot the data center market is right now, consider this recent report from Data Center Dynamics: Data center construction is slated to grow from just under $14.6 billion last year to just under $22.3 billion by 2019 — hitting a compound annual growth rate just shy of double-digits.
Digital Realty Trust is no stranger to that kind of growth, though — just glance at its consistently and substantially improving quarterly payouts for proof. DLR has increased its quarterly dividend every year since going public in 2004. In fact, the payout has grown from 24 cents at the beginning of 2005 to 85 cents last month — a 255% improvement that translates to an annual growth rate north of 12%.
That current 85-cent payout, I might add, is good for a dividend yield of 5.1%.
It’s no wonder the analyst community is so bullish about DLR stock. Barron’s recently noted that the stock has received four net new upgrades in the last couple of weeks alone, with analysts applauding the stock’s low price-to-funds ratio vs. competitors, projections for “more rapid leasing activity,” along with acquisition speculation.
Acquisitions are the most common way for REITs to find growth and continue growing their payouts, so that speculation is especially promising. Even without a shopping spree, though, Digital Realty comes with a lot to like — and offers investors a way to get some tech exposure without the usual speculation that goes with the sector.
As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.
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