Company Description: Digital Realty Trust, Inc., a real estate investment trust (REIT), that owns, acquires, repositions and manages technology-related real estate.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
DLR is trading at a discount to only 3.) above. When also considering the NPV MMA Differential, the stock is trading at a 193.8% premium to its calculated fair value of $53.9. DLR did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
DLR earned no Stars in this section. The company has paid a cash dividend to shareholders every year since 2005 and has increased its dividend payments for 0 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA (20-year Treasury bond). Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The negative NPV MMA Diff. means that on a NPV basis the dividend earnings from an investment in DLR would be less than a similar amount invested in MMA earning a 20-year average rate of 3.75%. If DLR grows its dividend at 0.0% per year, it will never equal a MMA yielding an estimated 20-year average rate of 3.75%.
Peers: The company's peer group includes: Brandywine Realty Trust (BDN) with a 12.6% yield.
Conclusion: DLR did not earn any Stars in the Fair Value section, did not earn any Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of zero Star. This quantitatively ranks DLR as a 0-Star Avoid stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $44.94 before DLR's NPV MMA Differential increased to the $3,500 minimum that I look for in a stock with 0 years of consecutive dividend increases. At that price the stock would yield 10.9%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $3,500 NPV MMA Differential, the calculated rate is 12.4%. This dividend growth rate is above the 0.0% used in this analysis, thus providing no margin of safety. DLR has a risk rating of 2.25 which classifies it as a Medium risk stock.
DLR has found its niche by focusing on the technology side of the real estate market. A portfolio of highly coveted properties and high switching costs will keep DLR generating steady profits over the long haul. In addition, its relatively low free cash payout and debt to total capital leave room for future dividend increases. DLR is trading well-above its calculated fair value price of $50.60. DLR failed to increase its dividend in 2023, thus this will be its last review.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in DLR (0.3% of my Dividend Growth Portfolio).
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