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Dividend Investing Stocks (Archived)

DLR - Digital Realty Trust, Inc.

Dividend investing is a popular strategy with investors seeking an income stream. Dividend investors can be placed into two broad categories.

  1. The growth approach - buy dividend paying stocks with emphasis on the company's ability to grow and increase its future dividend payments (to maximize the future yield).
  2. The yield approach - buy dividend paying stocks at cheap prices (to maximize the current yield).

Dividend investors using the growth approach tend to look for the same basic growth characteristics as found with growth investing, but the stock must also pay a reasonably reliable dividend.

Dividend investors using the yield approach tend to be more concerned with the stock price and the companies ability and willingness to pay a regular dividend rather than its ability to expand.

Sometimes a company will satisfy the requirements for both approaches.

In the February 2015 issue a fundamental analysis is conducted on a selected sample of stocks. The analysis is based on fundamental data from one year ago. This allows financial students and investors to see how the stock price performed over the next 12 months after the hypothetical purchase.

Digital Realty Trust, Inc.

Digital Realty Trust, Inc. NYSE:DLR is a mid-cap REIT (real estate investment trust) and its stock trades around $94 million per day. DLR is a relatively new company which was founded in 2004 and has reliably paid a dividend since it was founded and provides a decent dividend yield of around 4%.

The key fundamentals for DLR are shown below.

Growth fundamentals for DLR

YearIncomeEPS ROEDividendBook ValueEmployees
200425-0.29 -4%0.708.1023
20052000.44 4%1.0211.3053
20062800.51 4%1.1011.60100
20073900.52 4%1.1913.20150
20085300.66 5%1.2814.80210
20096300.84 6%1.6215.00260
20108600.94 5%2.2217.50450
201110601.21 6%2.7719.50530
201212801.44 6%2.9723.30720
201314802.10 8%3.1728.10780

The fundamental data above shows that DLR has broadly increased its revenue, earnings, book value and employees over the last decade. These are the characteristics of a growth stock. The dividends have consistently increased each year over the last decade. Thus DLR is a growth stock that also pays a reliable dividend - this gives the investor the best of both worlds. Also DLRs dividend yield is quite good which is currently about 4%.

Fundamental Analysis for DLR:

The return on equity is quite low and averages around 5%. The profit margin (profit to income ratio) is quite strong and is generally above 10%.

The debt-asset ratio (total liabilities to tangible assets) is around 60% which means that DLR carries a fair amount of long-term debt. Intangible assets and goodwill are not included in the ratio calculation. The tangible assets are used for the ratio calculation because these are hard physical assets that can be sold off in the event of bankruptcy liquidation whereas intangibles and goodwill cannot be sold.

The earnings growth for the 2013 fiscal year is projected to grow at 16% (based on the five year earnings growth trend). The revenue is projected to grow at 14% (based on the five year revenue growth trend).

The forward PE ratio is around 24 (calculated from the five year earnings growth trend rather than from forecast earnings).

The current business valuation would drop to around $30 if DLRs earnings growth stops (with a 2.8% ten year Treasury bond yield).

DLRs book value is around $28 and if DLR does run into financial problems in the future this gives an idea of how far the stock price could drop.

The sample analysis uses data that is one year old. The hypothetical purchase date for the stock is 17-Jan-2014 and this allows the reader to see how the stock performed over the next year.

Overall the fundamentals are good with this large-cap REIT which has a reliable history of paying a regular dividend and is currently providing a decent dividend yield of around 4%. Additional information such as consensus forecast earnings, broker recommendations and insider transactions are not considered for this sample analysis. A hypothetical position taken in DLR on the 17-Jan-2014 would give a purchase price of around $53.

The stock price performance is shown below in Chart 2. along with the annual earnings year to year growth. The stock chart is adjusted for splits and dividends.

Chart 2. Stock chart with earnings for DLR

weekly Chart DLR

As shown in Chart 2. above, DLRs gained around 40% over the next year including dividends. DLRs 2014 annual earnings declined by 48% over the 2013 fiscal year. DLRs 2014 dividends were $3.34 which is a 5% increase over the 2013 fiscal year.

Stock Analysis for Finance Students and Investors