Buy this stock before it becomes a dividend aristocrat
the Dividend Aristocrat the index is a group of elite stocks. To be considered a member, a publicly traded company must have a history of 25 years of consecutive dividend increases. Even some of the best dividend-paying stocks don’t get to this point – recessions, pandemics, and other factors often force great dividend companies to curb dividend increases.
A stock that is not quite there yet but is on the right track is Digital real estate trust (NYSE: DLR). This real estate investment trust, or REIT, which owns and operates data centers, has increased its dividend for 15 straight years (including in 2020), and there’s no reason to believe the streak is likely to end anytime soon.
Digital Realty Trust in a nutshell
Digital Realty is a huge REIT that owns and operates data center properties. The company has 284 data centers around the world and is one of the largest real estate investment firms of any type in the world. Digital Realty’s mission is to become the only global data center REIT serving all customers.
If you’re not familiar, think of data centers as the physical home of the Internet. When you access cloud-based software, upload a photo to social media, or stream a video, all of that data has to physically reside somewhere. And that’s where data centers come in. These are specially designed facilities that allow businesses to host servers and network equipment in a secure and reliable environment. Top Digital Realty Clients Read Like A Who’s Who Of Tech Giants – IBM, Facebook, Oracle, and Uber are all on the company’s top 20 list, to name just a few.
Why invest in data center real estate?
The demand for data centers has grown exponentially over the past decade, and there’s no reason to believe that will change anytime soon. The amount of data flowing around the world continues to grow, and with the gradual deployment of 5G technology and the continued increase in connected devices, it may even accelerate.
To cite just a few examples, the market for autonomous vehicles is expected to grow at an annualized rate of 37% until at least 2025 (autonomous vehicles have a huge need for data), the artificial intelligence market is expected to reach $ 90 billion by 2025, compared to $ 17 billion today, and the number of devices connected to the “Internet of Things” has more than tripled in the last four years alone.
Virtual and augmented reality should explode in the coming years, growing to a market of $ 193 billion by 2022 ($ 20 billion last year). And the home and remote work economy of 2020 has likely accelerated all of these trends. There was a point in April when Digital Realty was the only stock in my portfolio that was higher for the year, and that’s why.
Recent activity in the data center market shows that growth is still very strong. In North America, the market is absorbing data center inventory at nearly triple the rate of new construction.
Will he become a dividend aristocrat?
Digital Realty needs another 10 years of consecutive dividend increases to join the Dividend Aristocrats. While a lot can happen in 10 years, I don’t see any likely scenario where it doesn’t. The company only disburses about 70% of its core funds from its operations (FFO, the REIT version of earnings) as dividends now, and with long-term growth trends, there should be no shortage of cash available for dividend increases for the foreseeable future.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.