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Motley Fool Issues Rare “All In” Buy Alert
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When looking to achieve financial independence, one of the best things you can do is build up passive income streams. Dividend stocks are one excellent source of passive income.
As a dividend investor, you want to invest in a company that does two things. One, it should pay an attractive dividend yield. And two, you want a company with stable earnings to make dividend payments you can count on consistently.
Image source: Getty Images.
You can find these qualities in real estate investment trusts (REITs). These companies pool together investor capital, giving ordinary investors a chance to invest in real estate and rake in some of the profits. REITs must pay out 90% of their taxable income to shareholders in dividends, making these very attractive stocks for income investors.
Digital Realty Trust (DLR 1.46%) is one REIT that could deliver consistent dividend payments for the next decade.
Whenever you upload a picture or video or access music, the data you use must be stored somewhere. That’s where Digital Realty Trust comes in. The REIT provides companies with data center space to store their digital data on the cloud safely and is one of the top data center providers in the world, with 300 data facilities across 25 countries.
Digital Realty is well positioned in a fast-growing industry. The company has benefited from the rise in technology, including the Internet of Things, autonomous vehicles, and artificial intelligence, which all produce vast amounts of data that need to be stored somewhere.
Over the last decade, Digital Realty’s funds from operations, a key metric used in evaluating REITs, grew at nearly 20% compounded annually. As a result, its dividend payout has increased steadily, up 67% in the past decade or about 5% compounded annually. Digital Realty’s growth has also allowed it to increase its dividend payout for 17 consecutive years — a great sign if you’re looking for consistent income.
DLR Funds from Operations (TTM) data by YCharts
Digital Realty has come under pressure in recent months, as noted short-seller Jim Chanos has targeted legacy data center operators. Chanos told the Financial Times that legacy data centers face threats from Amazon, Google, Oracle, and Microsoft, which are big customers but are building their own data centers.
Digital Realty’s CEO Bill Stein disputed this, telling CNBC that “demand has never been stronger in our space” and that the company “had record booking in the last two quarters.”
While tech giants are building their own data centers, most companies can’t develop and manage these high-cost facilities, so they turn to existing providers. Demand for data centers remains robust, and Digital Realty logged record bookings for its services in the first quarter and the second quarter demand coming in strong too. The company has 44 expansion projects across 28 metro areas, and has presold 58% of that capacity — more evidence of strong demand for its data centers.
Not only that, but data centers serve specific regions to reduce latency or to speed the transmission of data. Digital Realty has an advantage, with 291 data centers spread across 50 major metropolitan areas worldwide.
Digital Realty stock has taken a hit this year — it’s down nearly 32% since the start of the year. While there are concerns about the business, including inflationary pressures and rising interest rates which could make it harder to borrow, the data center industry is still primed for solid growth.
According to Grand View Research, a market research and consulting firm, the global data center market size is expected to grow by 13% compounded annually through 2028 — presenting an excellent opportunity for Digital Realty to keep growing its operations. Digital Realty is expanding its business, including Africa and the Middle East, growing its existing footprint to lesser-served regions of the world.
With the explosion of data and its importance in our day-to-day lives, Digital Realty is well positioned to keep growing and raking in profits — making it an excellent source of passive income for the next decade and beyond.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Courtney Carlsen has positions in Alphabet (C shares) and Microsoft. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Digital Realty Trust, Jefferies Financial Group Inc., and Microsoft. The Motley Fool has a disclosure policy.
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