Digital Realty Trust, Inc. (DLR) is a global real estate investment trust that owns and operates data centers. Founded in 2004, Digital Realty Trust is now a $41 billion (by market cap) data center behemoth that employs nearly 3,000 people. Their real estate portfolio of over 290 data centers is spread out across 24 countries on six continents. These purpose-built properties are strategically located for their networking capabilities. Their global platform has over 4,000 customers.

Some of their largest customers include: IBM, JPMorgan Chase, Uber, and LinkedIn. When investors typically think of a REIT, their minds might initially conjure up images of shopping malls and office space. Well, this REIT is nothing of the sort. Its differentiation positions it squarely in the middle of the ongoing technology evolution, which involves almost every facet of our lives. See, everyday life is becoming increasingly digitized.

The Internet is now an essential part of most people’s day-to-day lives. We practically cannot function without it. And with the Internet-of-Things expanding into everything from smart homes to self-driving cars, our future is going to be more digital than it’s ever been. As it sits, Digital Realty Trust has increased its dividend for 17 consecutive years. The 10-year dividend growth rate is 8.6%. The stock’s current yield is 3.2%. I think that’s a very nice combination of yield and growth. By the way, this yield is more than twice as high as the broader market’s yield. It’s also within 30 basis points of the stock’s own five-year average yield. And the payout ratio is a reasonable 71.6%. That’s based on midpoint guidance for this fiscal year’s FFO/share. I like dividend growth stocks in what I refer to as the “sweet spot” – that’s a yield of between 2.5% and 3.5%, paired with a high-single-digit (or better) dividend growth rate.

Morningstar rates DLR as a 3-star stock, with a fair value estimate of $130.00. CFRA is another professional analysis firm, and I like to compare my valuation opinion to theirs to see if I’m out of line. They similarly rate stocks on a 1-5 star scale, with 1 star meaning a stock is a strong sell and 5 stars meaning a stock is a strong buy. 3 stars is a hold. CFRA rates DLR as a 3-star “HOLD”, with a 12-month target price of $170.00. I came out slightly below where CFRA is at. Averaging the three numbers out gives us a final valuation of $155.16, which would indicate the stock is possibly 9% undervalued.

Bottom line: Digital Realty Trust, Inc. (DLR) is an atypical REIT that has exciting exposure to the future of technology and society through its strategically located, purpose-built data centers. With a market-beating yield, high-single-digit dividend growth, a reasonable payout ratio, more than 15 consecutive years of dividend increases, and the potential that shares are 9% undervalued, this stock is worth consideration by dividend growth investors.

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