Digital Realty: The Right Place to Store Data

09/22/2020 5:00 am EST

Focus: REITS

Tom Hutchinson

Editor, Cabot Dividend Investor

Digital Realty (DLR) is a REIT that specializes in technology-related real estate. Specifically, it owns and operates over 270 data centers in 44 metropolitan areas across the world, reports Tom Hutchinson, editor of Cabot Dividend Investor.

It is the fifth largest REIT on the U.S. market with $3.4 in annual revenues. Its largest customers include dominant industry players including Facebook (FB), Verizon (VZ) and Oracle (ORCL).

A data center is a facility used to house computer systems and related components. We now live in an age when large (and small) institutions operate massive technology systems that require specialized infrastructure. Companies like Facebook and AT&T (T) can’t house the core of their operations just any old place.

They need a top notch facility with the proper temperature systems for the equipment, a dependable power supply with adequate backup systems, fire suppression and various security devices. Large data centers often require as much electricity as a small town.

The operational integrity of some of today’s most prominent companies depends on such facilities. In addition to the property itself, Digital also offers crucial co-location and interconnectivity services.

Since 2005, Digital has grown earnings at a compound annual growth rate of 12% and the dividend has grown 11% per year over the same period.

Digital continues to grow through expansions and acquisitions. In fact, it recently acquired European data center company Interxion, which offers collocation and interconnectivity services. It has a strong balance sheet with an investment grade rating that supports the dividend, currently yield 3%.

The stock has been a good performer and provides a conservative way of investing in technology. Sure, the company has had impressive growth and strong stock returns, but there is something that makes DLR truly standout.

It has very low volatility with a beta of just 0.21. That means it has less than a quarter of the volatility of the overall market. You get high growth at low risk. That is a big reason why I’m comfortable buying it in this uncertain market. It’s also a good buy at about 15% below the 52-week high.

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