|February 5, 2016
A Unique High-Yielder You Won't Hear About Anywhere Else
By Amy Calistri
After many years in the investment newsletter business, I've been fortunate enough to build quite a following -- particularly in my premium income advisory, The Daily Paycheck. And one thing I've learned in this business is that even after personally spending countless hours researching income securities to recommend to my subscribers, sometimes the best recommendations come from the readers themselves.
Back in May of last year, I encouraged my readers to submit the names of securities I didn't already hold in my portfolio. I promised to research each and every one of them and then offer my take on whether they were suitable candidates for the kind of dividend reinvestment strategy I use each month in my newsletter.
Many of my subscribers suggested the names of some great real estate investment trusts (known as "REITS"). If you're not familiar with these investments, they're tax-advantaged companies that own income-producing real estate assets -- usually in the form of things like apartments, retail space, medical facilities or office buildings. And because they are legally required to pass along at least 90% of earnings to shareholders, they usually offer market-beating dividend yields for investors.
But one REIT suggestion from a subscriber stood out to me in particular, and I've kept my eye on it ever since then (kudos to Joe D. from Beacon, New York, for spotting this unique idea).
And now, I'm ready to pull the trigger.
First of all, you should know that according to my research, only 10 REITs out of the 151 in the MSCI US REIT Index have increased their dividends every year since 2005 -- even during the worst of the financial crisis. This is one of them.
The company -- Digital Realty Trust (NYSE: DLR) -- is one of only a handful of REITs that specialize in data centers. But just because it is rare doesn't mean it is small. DLR is one of the 20 largest publicly-traded U.S. REITs and has an investment-grade credit rating.
It's no secret that data has become an important element of almost every business. Data centers have become so large and sophisticated, however, that most companies farm them out to specialists such as Digital Realty. Today, DLR owns and operates roughly 140 properties located in North America, Europe, Asia and Australia. It currently has roughly 2,000 leases covering more than 650 tenants, including large, stable companies such as Facebook, AT&T and Amazon.
The leases generally contain a 2.0% to 3.0% annual cash rental rate increase, which provides some room for income growth above and beyond growth of their facilities and tenants. And where there is income growth, dividend growth is soon to follow.
DLR currently pays a quarterly dividend of $0.85 per share. At current prices, that gives the stock a yield of about 4.2%. But you probably won't have to wait long for a dividend increase. As I mentioned earlier, DLR is one of only a few REITs that have increased their dividend for ten straight years. It generally announces a dividend increase in February for the dividend it will pay in March. So your first dividend might actually be higher than $0.85 per share.
Since I first covered DLR in The Daily Paycheck back in May, there have been two noteworthy developments. In October 2015, DLR acquired Telx, a data management company known for its proprietary interconnection technology. Telx's "meet-me" rooms allow users to easily transmit data to one another, an especially critical feature for telecom providers.
On January 21, DLR announced that it had secured a $3.55 billion global revolving credit facility and multi-currency term loan financing. This will help DLR continue to fund its global expansion. And DLR expects to grow its core funds from operations (FFO) by roughly 7% in 2016.
It's hard to find good income securities that have exposure to the growth in technology. But DLR gives you that, with an above-average yield and a solid track record of dividend growth. That's why I recently added shares to the Fast Dividend Growers section of my Daily Paycheck Portfolio.
I fully expect the shares to do their part in growing my income in 2016 -- well beyond the record $19,449 in dividends I earned in 2015. If you'd like to learn more about how my strategy works -- and get the names and ticker symbols of other exceptional income securities that allow my subscribers and I to earn larger paychecks every month -- you can simply follow this link.
Chief Investment Strategist
The Daily Paycheck