Dividend stocks have been trending higher for the past couple of years, as yield-starved investors look for income in a low interest rate world. With many dividend-payers now trading at or near 52-week highs, investors should be more cautious so that they don't overpay for a particular stock. By being selective and patiently waiting for pullbacks in the market or in a certain stock, investors can take advantage of various buying opportunities that continue to come up. The shares of Digital Realty Trust, Inc. (NYSE:DLR) appear to be offering investors a solid buying opportunity. Here is a closer look at the company and 3 reasons to buy the stock:
Digital Realty Trust is set up as a real estate investment trust [REIT] which means it is required to distribute at least 90% of its REIT taxable income to its stockholders. It is focused on buying, developing and managing real estate that is geared towards technology. This includes data centers, tech manufacturing, office properties and other corporate uses. Here are some key points to consider:
1) Digital Realty Trust has been in business since 2004, and it has seen substantial growth. Revenues have surged about 1000% over that time period, as it has benefited from the growth in cloud computing data centers that have been built around the United States and even in countries such as Australia and Singapore. It now has over 100 properties around the world.
2) Tech companies are seeing higher growth rates, and many have extremely strong balance sheets, which reduces risks for a company like Digital Realty. An ideal tenant is one that has both growth and a strong balance sheet, and the tech sector is one area where that is evident. Growth is poised to continue, since cloud computing, smart phones and other technologies see increased usage and demand. Consumers in emerging market countries are also contributing to growth as they become Internet users, smart phone buyers and create websites. Increased Internet and smart phone usage creates more data, which is why Digital Realty is poised for additional growth.
3) The dividend is generous at nearly 5%, plus it has a solid history of growth. The average stock in the S&P 500 Index yields just over 2%, so this stock provides more than twice that rate of income. It also has been repeatedly raising the dividend. In fact, the dividend is now about 10 times what is was in 2004 due to regular increases. In 2012, the dividend was raised again from 68 cents to 73 cents per quarter.
Investors should consider that investing in Digital Realty includes some typical risks that come with REITs, such as how management executes, and potential changes to existing tax laws for dividend income. A significant global crisis or recession in the United States could impact growth and profits for Digital Realty, as it might limit tech spending. However, since its inception, this company has faced similar challenges successfully and produced strong returns for shareholders. With the shares well below the 52-week high, it appears to be an attractive time to begin accumulating shares for the long-term.
Here are some key points for DLR:
Current share price: $60
The 52 week range is $59.25 to $80.59
Earnings estimates for 2012: $4.40 per share
Earnings estimates for 2013: $4.98 per share
Annual dividend: $2.92 per share which yields nearly 5%
Disclaimer: Data is sourced from Yahoo Finance. No guarantees or representations
are made. Hawkinvest is not a registered investment advisor and does
not provide specific investment advice. The information is for
informational purposes only. You should always consult a financial
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.