September 28, 2022
  • September 28, 2022

The Best Real Estate Dividend Stock for a Decade of Passive Income

By on September 9, 2022 0

When looking to achieve financial independence, one of the best things you can do is create passive income streams. Dividend stocks are a great source of passive income.

As a dividend investor, you want to invest in a company that does two things. First, it should pay an attractive dividend yield. And second, you want a company with stable earnings to make consistent dividend payouts that you can count on.

Image source: Getty Images.

You can find these qualities in real estate investment trusts (REITs). These companies pool investors’ capital, giving ordinary investors a chance to invest in real estate and reap a portion of the profits. REITs must pay out 90% of their taxable income to shareholders as dividends, which makes these stocks very attractive to income investors.

Digital Real Estate Trust (DLR 0.59%) is a REIT that could deliver consistent dividend payouts over the next decade.

A REIT in a fast-growing sector

Every time you upload a photo or video or access music, the data you use has to be stored somewhere. This is where Digital Realty Trust comes in. The FPI provides companies with data center space to store their digital data securely in the cloud and is one of the world’s leading data center providers, with 300 data facilities in 25 countries.

Digital Realty is well positioned in a growing industry. The company has benefited from the rise of technology, including the Internet of Things, self-driving vehicles and artificial intelligence, all of which produce large amounts of data that needs to be stored somewhere.

Over the past decade, funds from operations for Digital Realty, a key metric used in valuing REITs, has grown nearly 20% annually. As a result, its dividend payout has grown steadily, up 67% over the past decade or around 5% compounded annually. Digital Realty’s growth has also allowed it to increase its dividend payout for 17 consecutive years – a good sign if you’re looking for consistent income.

Charts showing Digital Realty's funds from operations and rising dividend, and slightly declining dividend yield, since 2014.

DLR Funds from Operations (TTM) Data by YCharts

Why a Famous Short Seller Targets the Stock

Digital Realty has come under pressure in recent months, as noted by short seller Jim Chanos who has targeted legacy data center operators. Chanos told the FinancialTimes that legacy data centers face threats Amazon, Google, Oracleand Microsoft, who are large customers but are building their own data centers.

Digital Realty CEO Bill Stein disputed that, telling CNBC that “demand has never been stronger in our space” and that the company “has seen record bookings in the past two quarters.”

While tech giants are building their own data centers, most companies can’t expand and manage these expensive facilities, so they turn to existing vendors. Data center demand remains robust and Digital Realty saw record bookings for its services in the first quarter and second quarter demand is also strong. The company has 44 expansion projects in 28 metro areas and has pre-sold 58% of that capacity, further evidence of strong demand for its data centers.

Not only that, but data centers serve specific regions to reduce latency or speed up data transmission. Digital Realty has an edge, with 291 data centers spread across 50 major metropolitan areas around the world.

Digital Realty looks to new markets to drive growth

Digital Realty’s stock has taken a hit this year — it’s down nearly 32% year-to-date. Although there are concerns about the company, including inflationary pressures and rising interest rates that could make borrowing more difficult, the data center industry is still poised for solid growth.

According to Grand View Research, a market research and consulting firm, the size of the global data center market is expected to grow 13% per year through 2028, representing a great opportunity for Digital Realty to continue to grow. its operations. Digital Realty is expanding its operations, including in Africa and the Middle East, expanding its existing footprint in underserved regions of the world.

With the explosion of data and its importance in our daily lives, Digital Realty is well positioned to continue growing and earning profits, making it an excellent source of passive income for the next decade and beyond.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Courtney Carlsen has positions in Alphabet (C shares) and Microsoft. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Digital Realty Trust, Jefferies Financial Group Inc. and Microsoft. The Motley Fool has a disclosure policy.