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4 Reasons Dividend Lovers Should Be Cheering This Data Center Mega-Deal


  • Digital Realty Trust has become the gold standard of data center REITs, and for good reason.
  • This industry blue-chip has a proven management team and has made countless investors very rich over the years.
  • However, its large size means that going forward, maintaining its historically strong growth rate is getting harder.
  • Buying DuPont Fabros is a great way to move the needle and ensure stronger and more secure dividend growth going forward.
  • DuPont investors meanwhile will benefit from larger economies of scale and greater access to cheaper capital going forward.

Real Estate Investment Trusts, or REITs, are generally known more for their generous and slow-growing dividends.

However, data center REITs are one exception, thanks to exponential growth of cloud computing, a mega-trend that is likely to dominate the 21st century.

Digital Realty Trust (NYSE:DLR), the second largest blue-chip in the field, is the gold standard of the industry, and a REIT I'm proud to own myself.

That being said, its large size means that going forward, maintaining the strong growth rates that investors have come to expect will be harder to come by. That's why I was excited to hear that Digital Realty was buying rival DuPont Fabros (NYSE:DFT) in an all-stock deal.

Let's take a closer look at this deal to see why investors in both data center REITs are likely to benefit from this deal.

As importantly, find out if now is a good time to buy Digital Realty, or if you should wait for a better price before adding it to your diversified dividend growth portfolio.

Digital Realty: A Fast Growing Blue-Chip Data

Digital Realty Trust is America's second largest data center REIT (behind Equinix (EQIX)) and has an excellent track record of some of the REIT sector's best growth rates since its IPO in 2005.

Source: Digital Realty Trust Investor Presentation

This fast growth is due to three key factors.

The first is the explosion in big data, courtesy of things like mobile computing, cloud storage, and video on demand.

This has resulted in demand for cloud computing and data centers that continue to far exceed the fast rate of new center expansion in the industry.

That in turn allows DLR to enjoy high occupancy rates while locking down recurring cash flows under long-term rental agreements with strong annual escalators that have outpaced the rate of

This article was written by

Dividend Sensei profile picture
Maximize your income with the world’s highest-quality dividend investments

Adam Galas is a co-founder of Wide Moat Research ("WMR"), a subscription-based publisher of financial information, serving over 5,000 investors around the world. WMR has a team of experienced multi-disciplined analysts covering all dividend categories, including REITs, MLPs, BDCs, and traditional C-Corps.

The WMR brands include: (1) The Intelligent REIT Investor (newsletter), (2) The Intelligent Dividend Investor (newsletter), (3) iREIT on Alpha (Seeking Alpha), and (4) The Dividend Kings (Seeking Alpha).

I'm a proud Army veteran and have seven years of experience as an analyst/investment writer for Dividend Kings, iREIT, The Intelligent Dividend Investor, The Motley Fool, Simply Safe Dividends, Seeking Alpha, and the Adam Mesh Trading Group. I'm proud to be one of the founders of The Dividend Kings, joining forces with Brad Thomas, Chuck Carnevale, and other leading income writers to offer the best premium service on Seeking Alpha's Market Place.

My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives.

With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and safe and dependable income streams in all economic and market conditions.

Analyst’s Disclosure: I am/we are long DLR. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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