Digital Realty Trust Offers Dividend Income and Capital Gains for Industrial Real Estate Investors (NYSE:DLR)

Ned Piplovic

Digital Realty

After a significant dip in the last-quarter 2018, driven by the downward pressure from the overall market correction, the Digital Realty Trust, Inc. (NYSE:DLR) recovered fully and contributed to the steady dividend income payouts for robust total returns over the last five years.

Since losing nearly 60% of its value during the 2008 financial crisis, the share price has advanced more than six-fold. Despite some minor volatility and few additional pullbacks over the past decade, the share price recovered quickly after every decrease and advanced higher towards new highs. Currently, the share price is back to trading at all-time high levels.

The share price decline in late 2018 pushed the 50-day moving average below the 200-day average by early-December 2018. However, the share price has been rising and pulling the 50-day moving average higher since late-February 2019. By the beginning of April, the 50-day moving average had broken back above the 200-day average in a bullish manner and continues to advance higher. Additionally, after fluctuating around the 50-day average for almost three months, the share price has been trading above both moving averages over the past 30 days, suggesting a potential extension of the current uptrend.

 

Dividends

To maintain a tax-favorable status as an real estate investment trust (REIT) and avoid paying corporate taxes, the Digital Realty Trust must distribute at least 90% of its income to their unitholders. Therefore, the company has been paying dividend distributions every year since its formation in 2004. However, in addition to making steady distributions, the company has also boosted its annual distribution amount every year for the past 14 consecutive years. Over that period, the Digital Realty Trust enhanced its annual payout nearly five-fold. This advancement pace corresponds to an average growth rate of 12% per year since 2004.

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The current $1.08 quarterly distribution marks a 7% increase over the $1.01 payout from the same period last year. This new quarterly payout amount converts to a $4.32 annualized distribution and a 3.4% forward dividend yield, which is 7.3% below the company’s own five-year average yield.

While the annual dividend distribution amount rose more than 30% over the past five years, the share price more than doubled during the same period. Because the yield is a ratio of the annual dividend payout and the current share price, rapidly rising share price whose growth outpaces the dividend increases will reduce the dividend yield, as it did in this instance.

However, despite lagging behind its own dividend yield average over the past five years, the Digital Realty Trust’s current yield fares significantly better in comparison to the average yields of its industry peers. The Digital Realty Trust’s current 3.4% yield outperformed the 2.91% simple average yield of the overall Financial sector by nearly 16%. Furthermore, the Digital Realty Trust current yield is also nearly 5% higher than the 3.29% average yield of the REIT’s peers in the Real Estate Development industry segment.

Investors interested in securities that deliver a steady flow of rising dividend distributions, should conduct their own stock analysis to ensure that Digital Realty Trust can maintain a strong growth potential as well as deliver a good fit with the investor’s individual portfolio strategy. However, after successfully completing all due diligence, interested investors should consider acting before the upcoming ex-dividend date on September 12, 2019. On the September 30, 2019, pay date, Digital Realty Trust will make dividend distributions to all shareholders of record prior to the ex-dividend date.

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Digital Realty

Share Price

The Digital Realty Trust share price entered the trailing 12-month period on a downtrend that began in late-August 2018. The share price declined for the remainder of the year and lost 17.5% before reaching its 52-week low of $101.83 on January 9, 2019.

However, after reversing direction at the beginning of 2019, the share price recovered all these losses by the end of August 2019 and reached its most recent all-time high of $128.62 on September 6, 2019. The share price pulled back 0.4% to close on September 9, 2019, at $128.09, which was 4% higher than one year earlier and nearly 26% higher than the January low.

Dividend distributions increased the total return on shareholders’ investment to 7.3% over the trailing year. However, the total return over the past three years was substantially higher, at nearly 40%. The shareholders also more than doubled their investment over the last five years with a total return of 121%.

 

Digital Realty Trust, Inc. (NYSE:DLR)

Headquartered in San Francisco, California, Digital Realty Trust, Inc. operates as a Real-Estate Investment Trust (REIT) and invest in assets that provide carrier-neutral data centers, as well as information technology (IT) server colocation and peer-to-peer network services. In 2004, GI Partners contributed 21 data centers acquired through bankruptcy auctions at significant discount to form the Digital Realty Trust. By early November 2004, the Digital Realty Trust became a publicly-traded company via an initial public offering (IPO). At the time of the IPO, the Digital Realty Trust had expanded its assets base to 23 data center locations, which offered a combined footprint of 5.6 million square feet. While continuing to expand its global presence, 78% of the company’s data centers are in North America. Digital Realty Trust’s second largest presence is in Europe, which accounts for 13% of the company’s annualized base rent (ABR). Asia with 7% share of ABR and Latin America with 2% round out the full list. Digital Realty Trust’s current customers include social networking, financial services, cloud computing, healthcare, manufacturing, consumer products and more. Facebook (NASDAQ:FB) is currently the largest customer with 7.5% of the REIT’s ABR. Additionally, IBM (NYSE:IBM), Oracle (NYSE:ORCL), and LinkedIn — a subsidiary of the Microsoft Corporation (NASDAQ:MSFT) — are among Digital Realty Trust’s top 10 customers.

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Ned-Piplovic

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.

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