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Could Digital Realty Trust Be a Smart Stock to Buy in 2022?

The Motley Fool
The Motley Fool
 2022-01-21

Data center real estate giant Digital Realty Trust (NYSE: DLR) has been a fantastic performer for shareholders, handily beating the market since its 2004 IPO. However, while the stock's track record is certainly strong, Fool.com contributor Marc Rapport thinks it could still have plenty of upside potential ahead. In this Fool Live clip, recorded on Jan. 7 , Rapport, along with colleagues Matt Frankel and Jason Hall, discusses why the real estate investment trust (REIT) could still have a very bright future ahead.

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Marc Rapport: Digital Realty Trust, it's a real estate investment trust, obviously. It's one of the first real companies that offered data centers. It's one of the first data center companies. They have been around since about '94, '95 in San Francisco. They bought a bunch of data centers and they have really grown with the industry. They are not your father's cloud-based storage provider anymore. They are really growing. They are one of the largest in the world right now.

What I like about them, they have a new platform, they call PlatformDIGITAL. It's what they are using to go to leverage the need for co-location that just connects both, big companies. Really complicated data storage and transmission functions across the world, wherever they are, and they are really expanding nicely. They have had two big purchases. One was just in the last few days, they bought one in Africa. What's the name of that company?

Jason Hall: Teraco.

Rapport: It's in South Africa, but it's a really interesting buy because it's in South Africa to home the subsea cables circling Africa. It's going to help them to be a leader in what they call the transition from telco-led consortia to content-controlled partnerships that's expected to transform internet connectivity across continents. I think that can be said really of data centers anywhere, that is what the whole PlatformDIGITAL thing is. It's not the telcos who are the owners of this technology or the drivers of this technology. It's data centers and the companies that use them. Speaking to that is the biggest tower center or tower provider, American Tower . They just bought CoreSite for that very reason, for about $10 billion. It's just a really interesting stock, as far as its performance, it's up 20% year over year but down about 3% for the month, but it's not the kind of stock I'd look at.

Hall: It's one of the rare tech stocks that's held its value over the past 10 months or so. It's really skyrocketed, while a lot of the other tech stocks have gone the other way.

Matt Frankel: It's had like tech-type growth over the past two decades or, I think it went public in '04, the long-term returns have been phenomenal. Jason can usually pull it up quicker than I can.

Hall: I'll pull it up real quick here.

Rapport: Well, I can tell you that a $10,000 investment in 2019 alone would already be $18,000.

Frankel: It's been in the tech-type returns, but without the tech volatility. I have referred to it in articles, this is a different kind of tech stock. There you go, that's Digital Realty and then the S&P 500 .

Hall: The purple line is the stock price. That's a 13-bagger since it went public. That alone is more than double the S&P 500, but again, because it's a real estate investment trust paying out that dividend. Then their growing of that dividend got 27-fold increase in value. Marc, is that good?

Rapport: I think that is pretty good. Undoubtedly, although they are tech stock, they're such an infrastructure stock that they are like a tech stock almost in a way you can almost say that a midstream energy company is a tech stock. They're the pipeline.

Hall: That powers the technology world.

Frankel: Yeah, it's like when Jason discussed Mastercard in a show we recently did and said they win no matter which of the merchants win, Mastercard is going to be a winner. Because overall, e-commerce is growing. It's the same thing with Digital Realty. No matter which tech companies win the innovation races, Digital Realty is going to benefit because the trends are all in the right direction. It's like a tech stock without having to bet on an individual tech stock.

Rapport: Because they're a REIT, they're obligated to pay dividends, and right now they are yielding under 3%, but still like I always do, I always compare them with CDs and savings and that is still pretty good. There is obviously a growth element in there.

Frankel: Yes, the chart Jason just had, I think the dividend itself is 400% higher than it was when they first went public.

Hall: Yeah, 16 years in a row, they've raised the payout every year. This is going to be a Dividend Aristocrat in less than a decade, I'm firmly convinced of that.

Jason Hall owns Digital Realty Trust and Mastercard. Marc Rapport has no position in any of the stocks mentioned. Matthew Frankel, CFP® owns Digital Realty Trust. The Motley Fool owns and recommends American Tower, Digital Realty Trust, and Mastercard. The Motley Fool has a disclosure policy .

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