This Data Center Stock Pays Investors Cash With Certainty

Digital Realty Trust, Inc.:This Data Center Stock Is Paying Investors CashThis Fast-Growing Tech Stock Could Be Special

It’s no secret that tech stocks can provide some of the best returns in today’s environment. Just take a look at how much the tech-laden Nasdaq Composite has outperformed the S&P 500 index so far this year and you’ll see what I mean.

But investors also know that a greater probability of higher returns is always associated with higher risk. And given the challenging socioeconomic environment we are still in, betting on soaring tech stocks can seem like a risky move.

Still, there are companies that can provide tech investors with peace of mind, even though they might be at the frontier of the tech world.

Digital Realty Trust, Inc. (NYSE:DLR) serves as a great example.

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Headquartered in San Francisco, Digital Realty Trust is in the data center business. Founded in 2004, the company now has over 270 data centers in more than 40 metro areas around the world. (Source: “Investor Presentation May 2020,” Digital Realty Trust, Inc., last accessed June 30, 2020.)

DLR supports the data center, colocation, and interconnection strategies of customers coming from a wide range of industries, including cloud and information technology services, communications, social networking, financial services, manufacturing, energy, healthcare, and consumer products.

If you are a tech stock investor, you’d know that data centers are some of the hottest things right now. Companies in different industries have been shifting their data to external systems, creating a surging demand for data centers.

And even though DLR stock may not be as famous as the mega-cap tech giants, the company has built a solid presence in the data center business.

Among its customers are well-known names like Facebook, Inc. (NASDAQ:FB), Oracle Corporation (NYSE:ORCL), IBM (NYSE:IBM), Verizon Communications Inc. (NYSE:VZ), and Morgan Stanley (NYSE:MS).

Furthermore, the business has been growing. Since 2005, Digital Realty Trust, Inc’s core funds from operations per share has increased at a compound annual growth rate (CAGR) of 12%. (Source: Ibid.)

As the company expanded its operations and grew its financials, investors also warmed up to DLR stock. In just the last five years, the share price of Digital Realty Trust has more than doubled.

Digital Realty Trust, Inc. (NYSE:DLR) Stock Chart

Chart courtesy of StockCharts.com

Of course, as the above chart shows, even though DLR stock has delivered huge returns to long-term investors, it can still have its ups and downs—as is the case with any tech stock.

But here’s where things get more interesting: instead of waiting for the stock to go up to make a return, investors of Digital Realty Trust, Inc. can actually receive cash payments from the company on a regular basis.

Those payments are the company’s quarterly dividends. In fact, DLR stock has always been a serious dividend play.

In 2005, Digital Realty Trust paid investors $1.00 per share in total dividends. Since then, management has increased the payout every single year. This year, the company is on track to pay $4.48 per share. That’s a total increase of 348%. (Source: “Dividend History,” Digital Realty Trust, Inc., last accessed June 309, 2020.)

One of the reasons behind this growing dividend stream is that DLR is structured as a real estate investment trust (REIT). REITs act as pass-throughs: as long as a REIT distributes at least 90% of its profits to shareholders in the form of dividends, it pays little to no income tax at the corporate level.

Now, the COVID-19 pandemic has brought a lot of uncertainty. But Digital Realty Trust doesn’t seem to have any problem paying its investors.

In the first quarter of 2020, the company generated core funds from operations of $1.53 per share, which easily covered its quarterly dividend payment of $1.12 per share. (Source: “Digital Realty Reports First Quarter 2020 Results,” Digital Realty Trust, Inc., May 7, 2020.)

For full-year 2020, management is projecting core funds from operations of $5.90 to $6.10 per share. Considering that Digital Realty Trust is expected to pay $4.48 per share in dividends for the year, the guidance range looks reassuring.

Analyst Take

The tech sector is a fast-changing one, and companies’ shares are often volatile. But by providing shareholders with regular cash payments, Digital Realty Trust, Inc. allows risk-averse investors to get a piece of the action from the booming data center industry.