Data centers — big warehouses of supercomputers — run most of the internet these days. When people talk about “the cloud,” they’re referring to these data centers doing most of the heavy lifting when it comes to computing.
These days, more and more devices are online thanks to these facilities. Your own computer, smartphone, TV and even your car are likely to access the cloud. As a result, demand for data centers is exploding.
Research and Markets projects facility construction to grow by 9% annually between now and 2019.
Tech giant Cisco Systems, Inc. (NASDAQ:CSCO) is more aggressive, seeing 16% yearly growth in private data centers between now and then. And its latest internet traffic forecast is even more bullish, projecting 20%-25% annual increases in internet traffic and 52.7% gains in mobile traffic.
CoreSite Realty Corp (NYSE:COR) buys and develops private data center facilities, and then leases them back to its clients. Think of CoreSite as part developer, part landlord. It builds, and then signs its 900-plus clients (such as Microsoft Corporation (NASDAQ:MSFT) and Verizon Communications Inc. (NYSE:VZ)) to long-term leases.
The firm currently owns 19 data centers in eight geographic markets, including a significant amount in California.
CoreSite’s Presence in Eight Major Markets
Business is booming. Margins are expanding too, thanks to a higher number of smaller clients who neither demand nor obtain the price breaks the big guys look for.
More and more clients means that no single one pays more than 5.7% of CoreSite’s total annual rent. Its 10 largest represent less than 30% of its business, and they’re locked into leases that last another 40 months on average. This is good diversification.
COR stock has grown revenues by 17% annually and funds from operation (FFO) by 26% over the last three years. (FFO is the REIT equivalent of earnings per share). REIT payouts are powered by FFO, and rising FFO usually translates into rising dividends.
And CoreSite’s payouts are actually accelerating higher. The firm boosted its dividend by 20% two years ago, and 26% last year. And that’s nothing compared to the hike it just announced — a fat 51% dividend increase!
There’s just one “problem” — its stock price can’t keep up with this rapid dividend growth! Shares are due to catch up in 2017:
COR Stock Price Playing “Catch Up” to Payout
CoreSite pays a generous 4.3% yield. And it’s likely to announce another big dividend increase at the end of 2017. Buy this internet “pick and shovel” play today — before its share price closes this current gap and looks ahead to the next payout boost.
Brett Owens is the Chief Investment Strategist for Contrarian Outlook. As of this writing, he was long COR.