The current iteration of the tech bubble is in social media. From LinkedIn (LNKD), through Groupon (GRPN) and Yelp (YELP), with Facebook (FB) in the on deck circle, the social media segment is where the "action" in the market seems to be. The problem is, how's the income investor to make any money from the current mania? Profits are scarce, to non-existent, let alone anything remotely resembling a dividend.
Still, all's not lost for the investor focused on dividends, and building a retirement portfolio. Investors can capitalize on the flurry of activity, while still adding yield, and even some capital appreciation by taking a look at two REITs that focus on data centers.
Digital Realty Trust (DLR), and Dupont Fabros Technology (DFT) are two operating REITs that are focused on owning, and managing data computer centers for firms such as Facebook, Yahoo, Microsoft, and others.
DLR is the larger of the two, with a market cap of $7.7B. It currently owns 98 properties, with an additional 3 properties held in unconsolidated joint ventures. The firm has facilities across North America, Europe, Singapore, as well as Australia.
DLR offers clients a "turnkey solution" to their data storage needs, doing design/build, as well as operation and management.
In contrast, DFT sports a market cap of only $1.4B, according to Morningstar. DFT currently operates 9 properties, 6 of which are in the Washington, D.C. area, with one facility each in Chicago, Piscataway, NJ., and Santa Clara, Ca. A second facility is under development in Chicago, and another is in the planning stages for Ashburn, Va., at the Ashburn Corporate Campus. DFT, like DLR, offers turnkey services.
DLR is currently trading around $72.50, just below it's 52 week high of $73.73. Despite that, it currently yields 4.02%, according to Morningstar. The firm just raised it's quarterly dividend to $0.73/sh from the prior $0.68 (a raise of 7.4%).
DFT, in contrast, is somewhat less expensive, trading around $23.66, with a 52 week high of $26.86. It also has a notably smaller yield of 2.01%, paying a quarterly dividend of $0.12.
DFT's IPO was arguably around the last market top, being floated on October 24, 2007, according to the firm's 2007 annual report. DLR, on the other hand, made it's debut in October, 2004.
DLR has managed to steadily managed to increase the dividend from $0.1563 in Q4/2004 to it's current $0.73. According to the firm's website, the current FFO payout ratio is 67%, which bodes well for the sustainability of the dividend, as well as further increases.
DFT's payout has been notably more "lumpy", as the annual payout has been $0.15/2007, $0.5625/2008, $0.08/2009, $0.44/2010, and $0.48/2011 (note these are annual totals, rather than quarterly payments).
Doing a quick "by the numbers" comparision, here's how the 2 firms stack up.
Price/Cash flow P/S P/B Yield
DLR 17.9 6.8 4.0 4.02
DFT 11.8 5.1 1.6 2.01
Its somewhat obvious (at least, to me), that DLR is the "safer" of the two companies, but it also strikes me that DFT may offer some potential for greater capital appreciation for the younger/more aggressive investor.
Sources: DLR company website
DFT company website