Generative AI is the talk of the town in 2023, and several companies are seeing massive capital inflows as everyone is trying to board the AI train before it departs the station, asserts Rida Morwa, editor of High Dividend Opportunities.
Generative AI is a type of artificial intelligence technology that can produce various types of content, including text, imagery, audio, and synthetic data, based on the specifications of the requestor.
As income investors, we seek sustainable dividends from our investments and choose to invest in firms that provide the infrastructure that enables AI platforms to grow and achieve their objectives.
DigitalBridge Group, Inc. (DBRG) is a unique company operating a private equity fund management business focused on digital infrastructure assets.
AI workloads require massive computational power and are projected to consume 80% of data center power over the next 15 years, and this will drive the infrastructure market to dwarf today’s $300 billion global public cloud market.
Hyperscalers, edge data centers, mobile towers, fiber, and small cells are vital components of this growing digital ecosystem, and DBRG is well-positioned to see rapid growth as capital pours into these essential building blocks.
DBRG’s transformation from a REIT to an alternate asset manager is progressing rapidly.
Previously, the company had a shrinking “Operational” business that owned data centers through its investment in Vantage and DataBank. During Q2, the company completed the deconsolidation of DataBank and is well-positioned to do the same with Vantage by the end of the fiscal year.
Today, DBRG’s core business involves raising funds from third parties and deploying the capital into the acquisitions and development of digital infrastructure assets, such as data centers, cell towers, and fiber networks, which are then actively managed by DBRG.
As an investment adviser and general partner of these funds, the firm collects a management fee, a percentage of FEEUM (Fee-Earning Equity Under Management)). These revenues are recurring, predictable, and stable, and the funds are long-term, with an average life of over ten years.
DBRG common stock offers a paltry dividend, so we look higher up in their capital stack for better income. In general, preferred shares provide safety and higher yields than common stock and are accompanied by lower volatility. They are perfect investments for income investments and retirees. However, they are sensitive to interest rates, and in today’s elevated interest-rate scenario, are trading at pennies on the dollar.
DBRG's +8% yielding preferreds are trading post their call dates, and management seeks to purchase them in the open market at these deeply discounted prices and has been steadily pursuing these purchases in recent quarters. During Q2, the company spent $920,000 to purchase some preferreds on the open market.
- 7.125% Series H Cumulative Redeemable Perpetual Preferred (DBRG.P.H)
- 7.150% Series I Cumulative Redeemable Perpetual Preferred (DBRG.P.I)
- 7.125% Series J Cumulative Redeemable Perpetual Preferred (DBRG.P.J)
At this time, all three preferreds present a similar current income of 8.5% and offer 19% upside to par. Readers are encouraged to consider whichever security presents the best deal at the time of purchase.