Digital Realty Trust Inc. ( DLR ) announced a 7% hike in its quarterly cash dividend rate, based on its bullish expectations of persistent growth in funds from operations. The company will now pay a dividend of 78 cents per share, a nickel above the prior-quarter dividend of 73 cents per share. The increased dividend will be paid on Mar 29, 2013 to stockholders of record on Mar 15.
Digital Realty has established an impressive track record of conservative capital management and cash returns to shareholders in the form of steady dividend. The current hike reflects the eleventh dividend increase since its IPO in the fourth quarter of 2004.
Based on the current dividend rate, the annual dividend rate comes to $3.12 per share, a 6.8% hike from the 2012 annual dividend of $2.92 per share. Moreover, it reflects a compounded annual growth rate of 15.3% since Digital Realty's first full quarter of operations following its IPO in 2005.
Digital Realty operates data centers and digital storage facilities, which are primarily used by telecommunication companies to maintain their presence on the Internet or augment their data networks. Data centers usually incur high costs for building and maintenance, and as such the supply is relatively inelastic.
Moreover, with the rise in the demand for digital storage facilities in recent years, Digital Realty has benefited greatly by negotiating favorable lease terms and maintaining strong occupancy rates. The long-term lease agreements have also insulated the company from short-term volatility and unfavorable market swing experienced during the recession. Therefore, the company is well poised to maintain its growth curves and simultaneously benefit the shareholders with steadily rising dividends.
In addition to Digital Realty, many other REITs have raised their dividends recently. Simon Property Group Inc. ( SPG ) raised its dividend by 4.5% sequentially, AvalonBay Communities Inc. ( AVB ) hiked its dividend by 10.3% and BRE Properties Inc. ( BRE ) declared a 2.6% sequential hike in its quarterly cash dividend.
As a matter of fact, solid dividend payouts are arguably the biggest attraction for REIT investors as the U.S. law requires these companies to distribute 90% of their annual taxable income in the form of dividends to the shareholders.
Digital Realty is scheduled to release its fourth-quarter 2012 results on Feb 15, 2013, prior to the opening bell. The Zacks Consensus Estimate for the company's fourth-quarter FFO (funds from operations) is currently pegged at $1.16 per share. The company currently has a Zacks Rank #4 (Sell).