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Digital Realty: Going "Ex" Next Week

|Includes: Digital Realty Trust, Inc. (DLR)

Digital Realty (NYSE:DLR) is a data center REIT investment. I bought in two stages last summer and have held it since. The stock isn't particularly expensive with a C15 PE of around 11.5x and a yield just shy of 6%. They have been a slow steady grower around 7.5%. My total return with DRL has been 28% over the past year. That has come from equity appreciation of around 16% and the rest in dividends and covered call income.

My strategy with DLR has been to try to sell calls as the stock is running up to the ex-dividend date. While not always the case, a lot of high yielding stocks run up just prior to the ex-date from dividend investors trying to capture the yield. What seems surprising is that many times, this run will be more than the actual dividend and the resulting sell-off after the ex-dividend date is also more than the actual payment. That provides an opportunity. Sell a covered call a few days before the stock goes ex and look to either buy it back for a profit or, if the stock looks weak, hold it go to expiration. My normal objective is to try to get a premium at or above the amount of the dividend.

I sold a July $60 call on DLR today at $0.75. Couldn't get the premium up to the dividend amount of $0.85 but with the jobs report out tomorrow it gives me a little insurance on the stock as well. This strategy has worked 4 out of 5 times for DLR. One time I ended up buying the call back at a loss when the stock rallied. If it does this time, I'll likely let the stock go. I still like DLR but over $60 and with an interim CEO, I'm not inclined to chase.

Disclosure: I am long DLR.