A cursory glance at a stock chart for data center real estate investment trust Digital Realty Trust (DLR) might lead one to believe that the company hasn’t been doing much lately, observes Jim Pearce, editor of Investing Daily's Personal Finance.

During the past year, Digital Realty went full circle, ending the second quarter slightly below where it was 12 months prior. However, that performance belies a flurry of activity that should push its share price higher in the years ago come.

During the past year, Digital Realty has been in acquisitive mode in response to rapidly escalating demand for cloud storage. The company’s current emphasis is on expanding its asset base to maximize dividend payments later. I expect the company to stick with that strategy until demand for remote data storage cools off.

Digital Realty has a simple “book and build” business model. It acquires remote data storage capacity and then leases it to users. At the end of June, Digital Realty had facilities in 47 metro areas around the world serving more than 4,000 customers.

Choosing to own shares of Digital Realty is an act of faith. You trust the company’s management team to deploy its assets now in a way that will allow it to make substantial increases to its future dividend payments.

Otherwise, the REIT’s forward annual dividend yield of 2.9% is too low compared to other REITs that are paying out at a higher rate.

Thus far, the professional money managers that control 99% of DLR seem satisfied with how the company is managing its growth. Its largest institutional and mutual fund shareholders, The Vanguard Group/Wellington Management and BlackRock (BLK) own more than 20% of Digital Realty’s outstanding shares.

Those types of shareholders don’t expect miracles but they do expect steady progress, which Digital Realty has delivered. On July 29, the firm released its fiscal 2021 second quarter results.

The company recorded funds from operations (FFO) of $1.78 this year versus $1.49 the year prior. That’s important since FFO is the source of dividend payments for a REIT.

On August 11, the company’s board declared a quarterly cash dividend payment of $1.16 per share payable on September 30 to shareholders of record as of September 15. That is a 3.5% increase over last year’s distribution, making 2021 the 17th consecutive year that the REIT has raised its annual dividend payment.

Over that span, the annual dividend has increased at a compound annual growth rate of 10%. In anticipation of a dividend hike during the first quarter of next year, I am raising our buy limit for Digital Realty to $170.

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