Digital Realty Trust: Is This 3.5%-Yielding Data Center REIT A Buy?

Apr. 07, 2019 4:34 PM ETDigital Realty Trust, Inc. (DLR)18 Comments
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Achilles Research


  • Digital Realty Trust is a fast-growing data center real estate investment trust with a first-class client base.
  • The REIT has grown its funds from operations and dividend very quickly in the last decade.
  • Digital Realty Trust's shares are not cheap, and an investment in DLR yields 3.5 percent.
  • The yield on cost is most likely going to rise going forward.

Digital Realty Trust, Inc. (NYSE:DLR) makes a decent value proposition for income investors that are comfortable with paying an elevated FFO multiple for the chance of capturing above-average dividend growth going forward. Digital Realty Trust has seen very strong FFO/share growth over the last decade thanks to growing demand for data centers. Digital Realty Trust covers its dividend with funds from operations and has significant room left to grow its payout. Shares are highly valued, and throw off an entry yield of 3.5 percent.

Digital Realty Trust - Company Overview

Digital Realty Trust provides data centers to large enterprise customers, largely tech firms and banks. Digital Realty Trust's real estate portfolio consists of 214 data centers, reflecting more than 34 million square feet. The REIT's properties are spread out all over the United States, but are nonetheless concentrated in major urban areas with attractive economic fundamentals.

Source: Digital Realty Trust Investor Presentation

Digital Realty Trust is a U.S.-anchored data center REIT with global ambitions. The REIT's data centers can also be found in Europe, Australia and Brazil. The majority of the REIT's annualized base rent (80 percent), however, still comes from the United States.

Source: Digital Realty Trust

Digital Realty Trust's customers include the largest and fastest-growing technology companies in the world, including Facebook (FB), IBM (IBM), Oracle (ORCL), and Uber (UBER).

Source: Digital Realty Trust

Growing internet use and traffic volumes point to growing demand for data centers in the future. As users create and consume more computing-intensive (video) content, companies that provide data centers face attractive long-term demand dynamics.

Source: Digital Realty Trust

Digital Realty Trust faces attractive growth dynamics in more than just one industry, though. Machine learning, autonomous driving, augmented and virtual reality, and the Internet of Things are projected to grow drastically until 2025, and likely beyond. Strong projected growth in these

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I am a dividend investor and look for undervalued investments in the stock market. I identify misunderstood and undervalued equity investments and hold those securities until their price approximates my estimate of intrinsic value. I am a long-term investor only. I am building a $100,000 high-yield income portfolio. I am running this portfolio as an experiment to see if long-term sustainable income can be generated from a diversified pool of high-risk, high-yield securities. I am willing to accept high risk in order to meet my performance goals.

Disclosure: I/we 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.

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