Internet stocks have had a good year.
) is up almost 90% year to date.Yahoo (
) is up almost 70%.
Neither pays a dividend. Is there a way to play the trend and
get a dividend? Only if you are willing to accept much smaller
Five property REITs in the data-center space provide a way to
grab a dividend related to Internet growth. Many tech companies
are customers of REIT-owned data centers. However, the indirect
play has its own risks.
DuPont Fabros Technology (
) owned 10 data centers as of June. The company has some
concentration of risk.Microsoft (
), Yahoo and Facebook account for 48% of base rent, as of
Funds from operations (FFO) are expected to grow 23% this
fiscal year and 24% in 2014. The annualized dividend yield is
3.9%, but the stock is up only 6% this year.
CoreSite Realty (
) has 14 data centers. The Street expects FFO to grow 17% this
year and 18% in 2014. The dividend yield is 3.3%. The stock is up
20% this year.
QTS Realty Trust (QTS) debuted on the NYSE a week ago. The
company has 10 data centers. QTS lost money the past two years.
The company will pay a pro-rated quarterly dividend of 29 cents a
share. The annualized yield would be 5.3%.
CyrusOne (CONE) andDigital Realty (DLR) work the data-center
space, but their stock prices have dropped 12% and 20%,
respectively, so far this year.
One risk for all is that clients could insource what they had
been outsourcing. They could build their own data centers.
However, the insource-outsource clock is always turning. One
CEO will ask, "Why are we outsourcing this when we could do it?"
The next CEO will ask, "Why are we doing this in-house when we
should be concentrating on our core competency?"
What time is it on the insource-outsource clock? Generally,
strong revenue growth in the data-center REITs suggest that
outsourcing still has time on its side.