Even though inflation numbers are coming down, they’re still high and stubborn, which means the likeliest path forward is that the Fed will keep rates higher for longer. That means outpacing the impact of high rates and inflation is still paramount for most investors.

One good way to accomplish that goal is to align yourself with an unstoppable trend poised to grow, and get paid a healthy dividend while you hold a stock that’s on the way higher.

So let’s talk about one of those trends. The amount of computing power necessary to power the artificial intelligence (AI) revolution is going to drive massive spending on everything from rare earths to build chips, semiconductors themselves, and data storage, just to name a few.

Case in point, revenue in the data center market is projected to reach $342.10 billion in 2023, and jump to $410.42 billion by 2027, just 3-and-a-half years from now, according to Statistica.

Of the 2023 numbers ($342 billion) almost a third ($99.97 billion) is expected to occur in the United States.

It might be tempting to try and identify which single company is going to come out on top of the data center market, but I think there’s a better way to profit from global spending in the sector, by way of a real estate investment trust (REIT) that focuses on providing the actual storage capacity to the industry, as a whole.

In case you’re not familiar with REITs, they’re companies that own real estate properties and lease them to tenants or invest in real estate backed loans, both of which generate a steady stream of income.

What’s great about REITs is that they are required to distribute 90% of their taxable income to shareholders annually, in the form of dividends. In return, REITs typically do not pay corporate taxes.

With that said, this week I’m watching Digital Realty Trust, Inc (DLR), the Austin, Texas-based REIT that provides data center, colocation, and interconnection solutions.

The company is one of the largest data center operators in the world, with more than 30 facilities in more than 50 metros across 27 countries. In addition to renting space in its facilities to companies, it also leases entire data center shells to other operators, including fellow data center REIT Equinix Inc (EQIX).

On July 27, 2023, the company reported Q2 2023 results that included revenue of 2023 of $1.4 billion, a 20% increase from the same quarter last year.

On the bottom line, Q2 net income came in at $116 million, and net income available to common stockholders of $108 million, or $0.37 per diluted share, compared to $0.19 per diluted share in the same quarter last year.

Those are all good numbers, and they demonstrate demand, but I also like DLR because of its dividend payment.

The company pays $4.88 per share annually. At the current price, that amounts to a healthy 4.07% yield.

That’s a great payout for a stock that’s on the rise!

DLR has gained more than 40% since its May 24, 2023 intraday lows. Some investors might be inclined to buy DLR, right now, and that would be fine, but I’d like to see shares pullback just a little before establishing a position.

As I write this, shares of DLR are trading at $121.44, which is just above the 7-day moving average of $122.34. At this point, I’d like to see DLR trade down to $119.00 (just below the 21-day moving average of $119.72) before establishing a position.

As I said earlier, data center spending is on the rise because data is the “currency” of AI, one of the main things that AI needs to run, and AI systems are advancing faster than anyone has anticipated.

— Shah Gilani

Source: Total Wealth