Data Center REITs Offer Dividends In Tech Space

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Internet stocks have had a good year.

Facebook ( FB ) is up almost 90% year to date.Yahoo ( YHOO ) 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 returns.


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 ( DFT ) owned 10 data centers as of June. The company has some concentration of risk.Microsoft ( MSFT ), Yahoo and Facebook account for 48% of base rent, as of December.

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 ( COR ) 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.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Investing Ideas

Referenced Stocks: COR , DFT , FB , MSFT , YHOO

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