Digital Realty Stock a Top 5G Play for 2022
The so-called Santa Claus Rally hasn’t had legs this year. American stock indices have taken another hit on fears about the spread of the COVID-19 variant Omicron, the pandemic-related lockdowns in Europe, the Federal Reserve reducing its monthly bond purchases, and the stalling of President Joe Biden’s infrastructure bill.
The broader stock market might be down, but shares of Digital Realty Trust, Inc. (NYSE:DLR) have been trading at record levels. As of this writing, DLR stock is up by:
- 4.6% month-over-month
- 10% since the start of November
- 27% year-to-date
- 35% year-over-year
Those are big gains, and Wall Street thinks Digital Realty stock still has room to run. Of the analysts providing a 12-month share-price target for Digital Realty Trust, Inc., their average forecast is $172.58, with a high estimate of $1.95. That points to upside of 0.5% and 14%, respectively.
Moreover, as a real estate investment trust (REIT), Digital Realty has to legally distribute at least 90% of its taxable income to its shareholders as dividends.
DLR stock’s quarterly dividend, which stands at $1.16 per share, is at an all-time high and provides a yield of 4.6%. (Source: “Digital Realty Declares Quarterly Cash Dividend for Common and Preferred Stock,” Digital Realty Trust, Inc., November 18, 20201.)
Digital Realty has raised its dividends for the last 16 consecutive years.
Demand for Data Centers Is Exploding
A provider of data center, colocation, and interconnection solutions, Austin, TX-based Digital Realty Trust, Inc. is able to reward buy-and-hold investors with high share-price growth and income because the demand for data centers has been exploding.
The increasing adoption of 5G, artificial intelligence, augmented reality, and the Internet of Things has resulted in a significant rise in the volume of data being transferred to the Cloud.
This has resulted in more and more companies, governments, and others using the Cloud and increasing the need for data centers.
The amount of data created, captured, copied, and consumed worldwide is expected to grow from about 59 zettabytes (ZB) in 2020 to about 149 ZB in 2024. (Source: “Share of Unique Data and Replicated Data in the Global Datasphere in 2020 and 2024,” Statistica, last accessed December 22, 2021.)
One ZB can store either 30 billion 4K movies, 60 billion video games, or 7.5 trillion MP3 songs.
Businesses and individuals can’t store all their information on data centers in their basements. It would be far too costly and would take up a lot of physical space. To store one ZB at home, you’d need to hook up 100 million 10-terabyte hard drives. (Source: “Seagate Is the First Company to Ship 3 Zettabytes of Hard Drive Storage,” PCMag, April 8, 2021.)
It’s estimated that, by 2025, the world will produce 175 ZB of data. Self-driving cars alone are expected to account for 32 terabytes per day.
This helps explain why Digital Realty Trust, Inc. has consistently reported excellent financial results. It also explains why Digital Realty stock has been doing so well—and is expected to continue to do so.
Chart courtesy of StockCharts.com
About DLR Stock
Digital Realty Trust, Inc. acquires, develops, and operates data centers.
The REIT provides solutions to customers in industries including information technology (IT), communications, social networking, finance, manufacturing, energy, health care, and consumer products. (Source: “Investor Presentation: September 2021,” Digital Realty Trust, Inc., last accessed December 22, 2021.)
Digital Realty currently has more than 170,000 cross-connects that generate $362.0 million in annualized revenue. A cross-connect is “a physical layer network connection between two parties.”
The company has 291 data centers in 50 metro areas on virtually every continent. North America accounts for most of its portfolio, at 61%, followed by Europe, the Middle East and Africa (28%); Asia-Pacific (eight percent); and Latin America (five percent).
Digital Realty Trust, Inc.’s customer type is diverse, with Cloud accounting for 28% of its customers, followed by Network (21%), Content (16%), IT (16%), Financial (10%), and Enterprise (10%).
The company has more than 4,000 global customers, and its top 10 are a who’s who of data hogs (though half of them wish to remain anonymous):
|Customer||Locations||% of Annual Recurring Revenue|
|Fortune 50 software company||55||9.7%|
|Global cloud provider||51||2.8%|
|Fortune 25 investment-grade company||25||2.5%|
|Fortune 500 software-as-a-service provider||15||2.1%|
|Social content platform||10||2.1%|
Another Strong Quarter
For the third quarter ended September 30, Digital Real Estate announced that its revenue increased by 11% year-over-year and four percent sequentially to $1.1 billion. (Source: “Digital Realty Reports Third Quarter 2021 Results,” Digital Realty Trust, Inc., October 26, 2021.)
The company’s net income in the third quarter of 2021 was $0.44, compared to a third-quarter 2020 net loss of $0.14 per share.
Its third-quarter 2021 funds from operations (FFO) were $1.54, up by 29.5% over the third-quarter 2020 FFO of $1.19 per share. The company’s core FFO per share were $1.64, versus $1.54 in the same period last year.
During the third quarter of 2021, Digital Realty Trust, Inc. signed bookings that are expected to generate $113.0 million of annualized rental revenue, including a $12.0-million contribution from its interconnection segment.
“Digital Realty’s global platform, broad product spectrum, and significant scale underpinned our strong third quarter results,” said CEO A. William Stein. (Source: Ibid.)
Digital Realty Trust, Inc. is the largest global provider of cloud and carrier-neutral data center, colocation, and interconnection solutions.
Over the years, the company has evolved. Its shift toward connection and colocation provides it with growth in its data center businesses and tailwinds from cloud providers and data connectivity.
This helps the company generate fabulous financial results and provides DLR stock investors with significant capital appreciation and dividend growth.