Digital Realty Is Raining Dividends
- Digital Realty is a cloud-based Data Center REIT and it appears that for a value investor, today is the perfect storm (pun intended) to pick up new shares.
- Digital recently announced it would increase its quarterly dividend on common stock by 8.6%.
- I’m maintaining a BUY on shares of Digital Realty.
One of the reasons that I decided to create my own customized “FANG-like REIT portfolio” was to prove that by holding the very best dividend growers an investor could achieve strong risk-adjusted returns.
Keeping in mind that many high-tech stocks don’t pay dividends, over time dividend-paying stocks have been shown to provide returns that are comparable to the market as a whole, and they have produced those results with significantly less volatility.
In other words, dividend stocks are generally much safer, they usually lag on the way up, but they also tend to hold up better when the market goes down.
Of course, even my “FANG-like REIT portfolio” called DAVOS has experienced considerable price volatility year-to-date. In an article last week, I explained,
“…value investors have guidelines that can point you in the direction of good stocks, and just as important, steer you away from bad ones. Simply put, buying stocks when they are cheap has always been the best way to grow money and stock of high-quality companies on sale reap the highest returns…
Recently I was speaking at a conference and someone asked, “If you started today and wanted to pick five of the best REITs, which ones would you select?”
Immediately, I thought about my ‘DAVOS’ portfolio, and I replied that I would buy four of the five REITs – Digital Realty (DLR), Ventas (VTR), Realty Income (O) and Simon Property Group (SPG) – but I would wait on American Tower (AMT), which yields just 2%. I then said I could still call it ‘DAVOS 2.0’ and swap out AMT for AvalonBay (AVB).”
DAVOS 1.0 has returned -9.5% YTD:
As you can see, one of the REITs included in the ‘DAVOS’ basket is Digital Realty, a beloved “blue chip” REIT that I have owned for around five years. Here is how Digital has performed since my initial purchase in May 2013:
As I reflect on my stake in Digital Realty, I cannot be happier. I was able to purchase shares during the perfect storm – when a ridiculous short thesis was disclosed along with the taper tantrum that sparked a broader REIT selloff in May 2013. As I explained in a recent article,
“I began my monthly newsletter service in May 2013 and that period felt a lot like today. REIT shares were getting hammered from the fear of rising rates and the perceived impacts thereof.”
Digital Realty is a cloud-based Data Center REIT and it appears that for a value investor, today is the perfect storm (pun intended) to pick up new shares. The selloff in the REIT sector has created a wider margin of safety and that’s precisely why I have initiated new purchases for my children’s college fund. I suppose I need to get all of the kids an umbrella because Digital Realty is raining dividends.