Digital Realty Trust is a specialty REIT which owns and operates data centers in both North America and Europe. There is a strong trend towards small and mid-cap companies moving the data operations to third party centers as consumers are conditioned to demand complete security and 100% uptime. But maintaining and securing that equipment is an expensive operation which requires a high level of expertise, and many companies find that its more cost effective to outsource those activities.
With operating margins over 20% and FFO consistently rising from quarter to quarter, DLR is currently yielding a little over 2.8%. While that's not terribly attractive in an of itself, being a REIT 26% of that payout is classified as return of capital and shielded from income tax. You own nothing on that portion until your cost basis is either reduced to zero or you sell your shares.
With the combined price appreciation and tax advantages, DLR is an attractive buy.
$40.92 (12/10/07)
