Last update on 2024-06-27

Digital Realty Trust (DLR) - Dividend Analysis (Final Score: 3/8)

Digital Realty Trust (DLR) dividend analysis scores 3/8, evaluating stability despite trends. Comprehensive investment insights for dividend-focused investors.

Short Analysis - Dividend Score: 3

We're running Digital Realty Trust (DLR) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

A firm's dividend yield measures the annual dividend payment relative to its stock price.

Digital Realty Trust's (DLR) current dividend yield of 3.6261% falls below the industry average of 6.18%. This trend can be seen as a negative aspect considering the comparison with the industry average. However, it's instrumental to note the company's historical perspectives. Over twenty years, DLR's dividend yield has fluctuated, reaching a high of 6.3518% in 2013, and notably declining below the industry average in recent years. This reduction in yield might be partially attributed to the significant appreciation in its stock price: DLR's stock price has surged from $13.47 in 2004 to $134.58 in 2023. Consequently, despite a consistent rise in dividends per share from $0.156 in 2004 to $4.88 in 2023, the yield has lagged due to the stock price increase. Therefore, while the current yield is low compared to the industry, the company's consistent dividend growth and stock price appreciation indicate strong underlying business performance and investor confidence.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate measures the annualized percentage rate of growth of a company's dividend over a period of time. This is key for assessing a company's ability to consistently increase shareholder returns, which can indicate financial health and future earnings potential.

Upon analyzing the dividend per share ratios of Digital Realty Trust (DLR) from 2003 to 2023, we notice a highly fluctuating and inconsistent pattern. Early years recorded very high figures, particularly in 2005 where the dividend per share ratio spiked to 539.1026% but then drastically fell in subsequent years. It's crucial to mention the negative value in 2015, followed by a noticeable decline in subsequent years ending with 0% in 2023. The calculated average dividend ratio over the years at 34.157% might seem promising initially, but the wide variance and frequent significant dips suggest instability. Given these patterns of dividend per share ratio, it is evident that sustaining a consistent growth rate of above 5% has not been achieved, reflecting a negative trend for dividend growth reliability in DLR's case. This sporadic growth trend is generally unfavorable for dividend-focused investors looking for steady and reliable growth.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio measures the proportion of earnings a company pays to shareholders in dividends. A lower ratio indicates sustainability.

The average payout ratio for Digital Realty Trust (DLR) over the last 20 years is approximately 169.46%. This is significantly higher than the ideal threshold of 65%, suggesting that DLR has consistently paid out more in dividends than it has earned. Such a high payout ratio can be problematic as it indicates the company might be overextending itself to reward shareholders, potentially compromising future growth or financial stability. Thus, this trend is worrisome for the sustainability of DLR’s dividend policy.

Dividends Well Covered by Earnings?

Dividends should be well covered by earnings to ensure sustainable payouts.

From 2003 to 2023, Digital Realty Trust's dividends per share were well-covered by earnings per share for most years, indicating a generally healthy financial state. For example, in 2021, the dividend coverage ratio was 1.535, implying that EPS was 53.5% higher than the dividends distributed. Exceptional EPS spikes, such as in 2021 (6.051), improve sustainability. However, periodic low coverages (e.g., 2004 - 0.685, 2020 - 0.767) warrant close monitoring to ensure long-term dividend stability.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow

Free cash flow represents the cash a company generates after accounting for capital expenditures. It's crucial to ensure that dividends are well-covered by the free cash flow to assess the company's ability to sustain its dividend payments without compromising financial stability. For Digital Realty Trust, the data spans from 2003 to 2023. Historically, from 2003 to 2011, the company's free cash flow was negative, making it difficult to cover dividends, indicated by negative values. From 2012 onwards, free cash flow turned positive, with substantial growth peaking in 2020. Correspondingly, the percentage of dividend covered by cash flow turns positive from 2012. The trend is favorable post-2012, with coverage percentages exceeding 60% and reaching nearly 93% by 2023, suggesting a robust financial footing in recent years.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends refer to maintaining or steadily increasing dividend amounts over an extended period. This stability is critical for income-seeking investors who depend on consistent payouts, especially over two decades.

When examining the dividend per share data from 2003 to 2023 for Digital Realty Trust, we see a general upward trend with minor fluctuations. However, there is a notable dip in 2017, where the dividend dropped from 4.25 in 2016 to 3.52, equating to a decline of approximately 17%. This decline, though not exactly 20%, is still significant and might raise concerns. However, the aggressive recovery and the increments seen in the following years reflect a resilient upward trajectory in dividends. Overall, while there was a drop, it rebounded positively, showcasing an underlying robustness in Digital Realty Trust's dividend strategy.

Dividends Paid for Over 25 Years?

Explain the criterion for Digital Realty Trust (DLR) and why it is important to consider

Digital Realty Trust (DLR) has not yet achieved a history of paying dividends for over 25 years. As recorded, dividends began in 2004, marking just under 20 years of consistent payments. Although this does not yet meet the 25-year threshold, the trend shows strong commitment to returning value to shareholders since 2004. This is significant because companies with long dividend histories are often seen as reliable, exhibiting financial stability and resilience. DLR’s upward trend in dividend distribution from $0.156 per share in 2004 to $4.88 per share in recent years enhances investor confidence. Despite not reaching the 25-year mark, the continually increasing dividends reflect solid financial health and strong operational performance. Therefore, the trend is positive and bodes well for DLR’s future prospects.

Reliable Stock Repurchases Over the Past 20 Years?

reliable stock repurchases over the past 20 years

Digital Realty Trust (DLR) does not demonstrate a consistent history of stock repurchases over the past two decades. The number of shares outstanding has steadily increased from approximately 20 million in 2003 to nearly 300 million by 2023. This indicates that DLR has primarily issued more shares rather than repurchasing them. Consequently, an investor looking to invest in a company that regularly buys back its shares might not find DLR meeting this criterion. The rising number of shares could be a signal of dilution, albeit it's crucial to contextualize why these shares were issued—often, it's to fund growth, acquisitions, or other strategic initiatives. However, in specific metrics related to dividends, higher shares outstanding might dilute individual shareholder's earnings per share (EPS) and dividend per share (DPS). This trend might be a concern if dilution substantially outpaces the company's actual growth and value creation.