Excuses are a powerful thing. One excuse can negate 100 opportunities.” ― Bobby Darnell
This instablog post comes from Tim Plaehn, expert on income investing and a friend & colleague of mine at Investors Alley as well as a contributor here on SeekingAlpha. Tim runs the Dividend Hunter newsletter which offers a solid & diverse selection of attractive high yield plays. The service is now over 6,300 active subscribers and can be had HERE for the rock bottom price of $49 (It usually is $99) for the first year. There are few better bargains around for those looking for solid income plays to balance their high beta holdings.
The value of a missed moment or opportunity is always higher at the end of a lost game.” ― Shahenshah Hafeez Khan
By Tim Plaehn,
The need for an ever-increasing amount of data storage is a growth story that appears to have a very long runway. Experts estimate that the “digital universe” will double every two years (that’s a 50-fold increase in a decade). Enterprise IT, cloud computing and services, and the Internet of Things all require larger and larger amounts of data storage capacity. Data center owning real estate investment trusts (REITs) are a conservative way to play this trend, with potential for high teens, up to 20% annual total returns.
There is a small handful of REITs that specialize in developing and leasing data centers. All of these companies are in a growth mode and are either acquiring and/or developing new facilities to lease out to a wide range of customers. The investing public often forgets that this REIT sector is an integral part of the technology industry. Often, they are treated like any other class of REIT. This dichotomy of market focus allows the smart investor to pick up data center REIT shares when the REIT sector at large goes into a decline. Multi-year investment returns from the data center companies will be driven by cash flow and dividend growth rates.
Let’s take a look at three REITs that can put high-teens annual compounding total returns into your portfolio.
Equinix, Inc. (EQIX) is the $32 billion market cap, 800 lb. gorilla of the data center industry. The company converted from corporate tax payer to REIT status at the start of 2015. The company is a colocation and interconnection service provider. Colocation is a data center facility in which a business can rent space for servers and other computing hardware. Typically, a colocation facility provides the building, cooling, power, bandwidth and physical security while the customer provides servers and storage.
The company’s services currently give 9,800 customers 280,000 interconnects between data centers and world’s digital exchanges. According to the current Investor Overview presentation, Equinix owns 190 data centers in 24 countries, on five continents.
This is truly an international company. Over the last decade the company has produced 26% and 29% compounding annual revenue and EBITDA growth. This results in mid-teen per share cash flow growth. For 2018 the company forecasts 14% FFO per share and dividend increases. The shares currently yield 2.2%.
Digital Realty Trust, Inc. (DLR) is a $20 billion market cap REIT that owns 205 data centers in 12 countries. Digital Realty has 2,300 customers. Digital Realty is also a colocation and interconnection services provider.
This REIT’s customer list includes some of the largest technology and telecommunications companies. In the top 10 are IBM, Oracle, Verizon, Linked In, and even Equinix.
According to the current investor presentation, Digital Realty has grown FFO per share for 12 straight years. Over that period cash flow to pay dividends has grown by a compounding 12.3% per year. This chart shows the FFO growth compared to large REITs in other sectors:
The DLR dividend has grown by 10% plus per year for the last decade. Management forecasts a 9% increase in 2018. The shares currently yield 4.0%.
CoreSite Realty Corp (COR) is a $3.6 billion market cap REIT that owns 20 data centers in eight strategic U.S. cities. The company’s focus is to provide colocation services to enterprise, network, and cloud services companies. Here is a graphic of the larger (out of 1200) customers:
CoreSite is the high growth, higher risk company out of the three covered here. Since 2011, FFO per share has grown by 23% compounded and the dividend by more than 30% per year. Future results will cycle from relatively flat to high growth years.
An investment in COR will not be as stable as with the large cap data center REITs. The flip side is the potential for large dividend increases and corresponding share price gains. The shares currently yield 3.7%.
Undoubtedly, failure is growth in pain’s disguise.” ― Craig D. Lounsbrough
Don't forget to register for the first Online Biotech Summit on May 9th. Myself, and several other top SA biotech authors deliver their views on the sector, what lies ahead for M&A in the industry for the rest of 2018 as well as some of their favorite biotech stocks at the moment in individual one hour interviews. Registration is FREE by clicking here. We are hoping this event is a big success so future similar online conferences will become a bigger part of the SA landscape. I hope you will join us!
Thank You & Happy Hunting,