Has Digital Realty Trust Lost its Mojo?


The fact that Digital Realty (NYSE:DLR) lost part of its luster in a coveted sector due to second quarter results is not really news. Distribution-boosting components such as FFO and dividend per share growth have been disappointing in comparison to its Data Center peers. While CoreSite Realty Corporation (NYSE:COR) raised dividends by 20 percent in Q2 2015, compared to the same period last year, Digital Realty only increased theirs by 2 percent.

Digital has not had the worst performance year-to-date, however. That title goes to DuPont Fabros Technology (NYSE:DFT). After one of its clients defaulted, concerns were raised about the company’s due diligence. Digital returned 4.5 percent as DuPont Fabros went down by 16 percent. CoreSite leads the 2015 Data Center returns; given its very good FFO per share growth rate projection, CoreSite should remain a winning REIT stock in 2015.

Data Center as a whole has been a winning REIT sector. There has been a lot of discussion about the increased need for data storage and the growing interest in investing in the Internet of Things. For that reason, the sector has fared very well. The median stock return–the best among sectors–has been 21 percent year-to-date. On the contrary, median dividend yield has been one of the lowest at 3.4 percent.

Digital shows a good dividend yield of 4.9 percent. Does this mean that it is the Data Center REIT with the best chances of growing dividends? Absolutely not–better choices can be made to accomplish that. In two weeks, the company will announce its third quarter results and we will have a new update. Maybe the recently closed Telx Holdings transaction of US$1.9 billion will help boost the third quarter results.

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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