Digital Realty Boosts Dividend 6.4%

NEW YORK (TheStreet) -- Digital Realty Trust (DLR), a leading data center landlord, announced Wednesday it is increasing its common stock dividend by 5 cents to 83 cents per share. This new increase represents a 6.4% hike over the 2013 annualized dividend of $3.12 per share. The quarterly common stock dividend of 83 cents per share will be paid to common stockholders of record as of March 14.

The board authorized a preferred stock dividend of 43.750 cents per share to be paid to holders of record of the company's 7.000% series E cumulative redeemable preferred stock as of March 14. Holders of record of the company's 6.625% series F cumulative redeemable preferred stock as of March 14 are entitled to a preferred stock dividend of 41.4063 cents per share.

The company's board also authorized a preferred stock dividend of 36.7188 cents per share to holders of record of the company's 5.875% series G cumulative redeemable preferred stock as of March 14. The payout date is March 31 for all dividends.

Digital Realty has finally started to recover from a turbulent year in 2013 starting with the Highfields Capital short on May 8 and then the Federal Reserve taper tantrum on May 22. Then two botched earnings calls on July 26 and Oct. 30 that collectively cost the stock 23% as shares slid from $65.40 to a bottom of around $49.

Digital Realty stock closed at $52.91 Wednesday, up 7.7% for the year to date.

Much of the selloff in Digital Realty shares had more to do with the sustainability of the dividend and the potential impact to the competitive moat that the $12.4 billion real estate investment trust enjoys. As the demand in cloud storage continues to explode, some fear Digital could one day be a competitor for the big cloud players Google (GOOG), Amazon (AMZN) and Facebook (FB).

However, Digital Realty has enjoyed a coveted earnings history as Funds from Operations (FFO) -- the primary earnings metric for REITs -- has increased steadily and the company has demonstrated a commitment to provide investors with a secure and growing dividend stream. The company's AFFO, or adjusted funds from operations, payout was 84.7% as of the third quarter of 2013.

The announced 6.4% dividend increase speaks volumes, as that news provides the best possible evidence of dividend safety. This tells me that management is strongly committed to maintaining and increasing the dividend, and that is one of the loudest messages that management can send.

Digital has increased its annual dividend for 10 years in a row and the current dividend yield is 5.91%. Shares are trading at $52.79 with a P/FFO (price to funds from operations) of 11.4x. The company has investment grade ratings for Moody's, Fitch, and S&P (BBB). Digital reports fourth-quarter earnings on Feb. 24.

Source: SNL Financial and FAST Graphs

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At the time of publication, Thomas was long DLR.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Brad Thomas has more than 25 years of experience in the commercial real estate brokerage, development, finance, and investment analysis and the majority of his experience has been research and consulting. Throughout the years Thomas has provided nationwide real estate brokerage, construction services, development services and capital market solutions for a variety of clients and investors. 

Thomas has written for Forbes, The Street, Seeking Alpha and The Motley Fool, whereby he maintains “real time” research on many US REITs. In addition, Thomas is the editor of The Intelligent REIT Investor, a monthly subscription-based newsletter. Thomas also owns a research website called iREIT Investor where his company provides REIT research and current REIT valuation analytics. 

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