Data center REITs typically own properties are a combination of data centers that store and process information, technology manufacturing sites and Internet gateway datacenters which are in high demand right now.
This article will discuss 3 data center REITs that offer an attractive mix of high dividend yields and future dividend growth potential.
Digital Realty (DLR)
Digital Realty owns over 300 facilities in 28 countries on 6 continents. The trust has a market capitalization of ~$30 billion. On April 27th, 2023, Digital Realty reported first quarter 2023 results for the period ending March 31st, 2023. For the quarter, Digital Realty’s revenue came in at $1.3 billion, a 19% increase compared to Q1 2022. During the quarter, the company generated $1.66 in core FFO per share compared to $1.67 per share prior.
Digital Realty also updated its 2023 guidance, and now anticipates $5.5 billion to $5.6 billion (down from $5.7 billion to $5.8 billion) in revenue and $6.65 to $6.75 (unchanged) in core FFO.
Digital Realty has been very strategic in its acquisitions. For example, in 2017, Digital Realty completed its purchase of DuPont Fabros Technology, a REIT that leased properties to some of the largest tech companies in the world. Companies like Microsoft (MSFT) and Facebook (FB) are then free to build their own data centers within the properties. More recently, Digital Realty added Interxion, gaining exposure to the European cloud industry.
Digital Realty’s dividend payout ratio (using FFO instead of earnings) is comparatively low for a REIT, which should give shareholders confidence that the dividend is relatively safe. Digital Realty’s chief competitive advantage is that it is among the largest technology REITs in the world. This gives the REIT a size and scale advantage that competitors have difficulty matching. In addition, the company has proven to be able to utilize its balance sheet to fund acquisitions in order to grow FFO and revenues.
Digital Realty recently declared a $1.22 quarterly dividend, marking a 5% increase and the company’s 17th straight year of increasing its payout. The stock currently yields 4.4%.
Equinix (EQIX)
Equinix also specializes in data centers. The trust operates 248 data centers across 32 countries on 6 continents serving over 10,000 customers. Slightly less than half of the data centers are outright owned by Equinix, and these generate 63% of recurring revenues.
EQIX reports revenue in a couple of different segments: colocation, interconnection, managed infrastructure and other. The Interconnection Solutions segment allow customers to connect directly, securely, and dynamically within and between other EQIX data centers around the globe. There are currently 452,000+ total interconnections.
Equinix reported first quarter 2023 results on May 3rd, 2023. For the quarter, the company announced a 15% increase in revenue compared to Q2 2022, to $2.0 billion. The company has achieved 81 consecutive quarters of revenue growth. Adjusted funds from operations (AFFO) for the quarter was $802 million. AFFO per share increased 21% compared to the previous quarter to $8.59.
Equinix is a company that is actively expanding its platform and has 50 major projects in development across 37 different markets. Management provided the 2023 annual guidance and expects a roughly 13.5% increase in revenues, reaching $8.23 billion. The guidance also calls for an AFFO of roughly $2.97 billion, a 9.5% increase from 2022 and an estimated AFFO per share gain of 6.5%
EQIX has a strong history of growth. EQIX has grown revenues for 20 years straight, and the company’s bottom line has also been on a straight uptrend for many years, over a decade. For the past nine and five years, Equinix has been able to grow its AFFO at an average annual rate of 10%.
EQIX has an attractive dividend growth profile. On February 15th, 2023, Equinix announced a 10% increase to the dividend to $3.41 quarterly per share. It has increased its dividend for 7 consecutive years. Shares currently yield 1.8%.
Iron Mountain (IRM)
Iron Mountain is a storage and information management REIT. Its services include record management, destruction, fulfillment services, data protection and recovery, server and computer backup services, and safeguarding of electronic and physical media. Iron Mountain operates in North America, Latin America, Europe, and the Asia Pacific region.
Iron Mountain reported its first quarter earnings results on May 4. The trust announced that it generated revenues of $1.31 billion during the quarter, which was up 5% from the revenues that Iron Mountain generated during the previous year’s quarter.
Iron Mountain’s normalized funds-from-operations came in at $0.71 per share during the first quarter, which was up 8% compared to the previous year’s quarter. The company managed to grow its margins during the period, compared to the previous year’s quarter, as its expenses rose a little less than its revenues.
Management reiterated its guidance for this year’s adjusted FFO-per-share with a range of $3.91 to $4.00, which represents solid growth of around 4% at the midpoint of the guidance range.
With a dividend payout ratio of approximately 63% for 2023 (based on FFO-per-share) the dividend appears secure. Shares currently yield 4.4%.
Final Thoughts
Investors seeking income may find REITs appealing due to their typically high dividend yields. Nonetheless, it is advisable to choose safe REITs that can continue paying dividends in the event of an economic downturn within the following year.
Data center REITs are considered attractive stocks for income: they have reasonable debt levels, ample cash flow to sustain dividend payments, and offer high yields.
On the date of publication, Bob Ciura did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.