A detailed quantitative analysis by Digital Realty Trust, Inc (DLR) is linked here. Below are some highlights from the analysis linked above:
Company description: Digital Realty Trust, Inc., a real estate investment trust (REIT) that owns, acquires, repositions, and manages technology-related real estate.
Fair value: When calculating the fair value, I take into account the differential fair value of the present value MMA along with these four fair value calculations. A detailed description can be found on page 2 of the linked PDF:
1. Avg. High yield price
2. 20-year DCF award
3. Avg. P / E price
4. Graham Number
DLR trades with a surcharge on all four of the above ratings. Including the NPV MMA differential, the stock is trading at a premium of 74.3% over the calculated fair value of $ 77.31. The DLR did not receive any stars in this area.
Dividend analytical data: There are three possible stars and three key metrics in this section. A detailed description can be found on page 2 of the linked PDF:
1. Free cash flow payout
2. Debt to total capital
3. Key Metrics
4. Dividend Growth Rate
5th years Div. growth
6. Rolling 4 year old Div. > 15%
In this area, the DLR has earned two stars for 2.) and 3.) above. The stock earned a star because its recent debt to total capital was less than 45%. DLR received a star for an acceptable score in at least two of the four key metrics measured. The company has paid a cash dividend to shareholders every year since 2005 and has increased its dividend payments for 17 consecutive years.
Dividend Income vs. MMA: Why would you take the equity risk and invest in a dividend stock when you could get a better return on a much less risky money market account (MMA) or a government bond? This section compares that stock’s earning power to a High performance MMA (20-year government bond). There are two points covered in this section. A detailed description can be found on page 2 of the linked PDF:
1. NPV MMA Diff.
2. years to> MMA
The NPV MMA Diff. of the $ 566 is below the $ 1,800 target I’m looking for for a stock that has increased dividends as long as DLR has done so. The stock’s current yield of 3.33% exceeds the estimated average MMA rate of 2.74% for 20 years.
Peers: The company’s peer group includes: Brandywine Realty Trust (BDN) with a yield of 5.9% and CoreSite Realty Corporation (COR) with a yield of 4.5%.
Conclusion: The DLR did not deserve any stars in the Fair Value category, two stars in the Dividend Analytical Data category and no stars for a total of two stars in the Dividend Income vs. MMA category. This means that DLR is quantitatively classified as 2 star weak Camp.
With my D4L-PreScreen.xls Model, I decided that the stock price would have to drop to $ 84.45 before the DLR’s NPR-MMA differential rose to the minimum of $ 500 that I’m looking for on a stock with 17 years of consecutive dividend increases. At that price, the stock would generate a return of 5.3%.
Resetting the D4L-PreScreen.xls The dividend growth rate model and solution required to generate the targeted MMA differential of $ 500. The calculated rate is 8.3%. This dividend growth rate is higher than the 3.7% used in this analysis, so there is no margin of safety. DLR has one Risk assessment of 2.0, which it classifies as a medium risk stock.
DLR has found its niche by focusing on the technology side of the real estate market. A portfolio of sought-after properties and high conversion costs will lead the DLR to constant profits in the long term. In addition, the relatively low disbursement of free cash and the indebtedness of the total capital leave room for future dividend increases. The DLR is trading well above its calculated fair value price of USD 77.31. So I will wait for a more opportune time to improve my position for now.
Disclaimer: The material presented here is for informational purposes only. The above quantitative stock analysis, including the star rating, is mechanically calculated and based on historical information. The analysis assumes that the share will develop in the future as it has in the past. In general, this is never true. Before buying or selling stocks they should do your own research and arrive at your own conclusion. Please see my disclaimer for more information.
Full disclosure: At the time of this writing, I’ve been with DLR for a long time (0.3% of my dividend growth portfolio).
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