Ushering in good news for shareholders, data-center REIT CoreSite Realty Corporation (COR - Free Report) announced a hike of 8.9% in its quarterly cash dividend. The company will now pay a dividend of 98 cents per share for the fourth quarter, up from 90 cents paid in the prior quarter.
It also marks a 22.5% increase from the dividend rate set in December 2016. The raised dividend will be paid on Jan 16, 2018, to shareholders of record as on Dec 29, 2017.
Based on the increased rate, the annual dividend comes to $3.92 a share, resulting in a yield of about 3.4%, considering CoreSite’s closing price of $115.08 on Dec 7. Moreover, the company’s dividend per share has witnessed a compound annual growth rate (CAGR) of 35% since 2011 through 2017. This reflects its continued efforts to boost shareholders’ wealth.
Also, per the company’s CFO, Jeff Finnin, the company is “targeting the amount and timing” of its dividend hikes “to ensure dividend growth is closely aligned with performance and cash flow generation.”
CoreSite has robust fundamentals to back dividend hikes. Per management, this data-center REIT has been chosen by more than 1,200 of the world’s leading enterprises, network operators, cloud providers, and supporting service providers for connecting, protecting and optimizing the firms’ performance-sensitive data, applications and computing workloads.
In fact, the company has been a decent performer, beating the Zacks Consensus Estimate in three of the past four trailing quarters on funds from operations (FFO) per share basis, with an average positive surprise of 3.91%. CoreSite’s ROE is 15.35%, higher than the industry’s ROE of 5.78%.
Also, this data-center REIT churns cash flow per share of $4.96 as compared to the industry average of $2.27. The company has witnessed decent cash flow growth in the past. Further, CoreSite has current cash flow growth of 28.23% against the industry average of 15.88%. This will likely help the company sustain its dividend payout to equity investors.
In addition, fundamentals of the data-center real estate market remains robust. Growth in cloud computing, Internet of Things and big data is not only helping tech companies, but also driving demand for data-center REITs. As such, demand is outpacing supply in top-tier data-center markets, and these are absorbing new construction at a faster pace despite enjoying high occupancy. Also, data-center REITs pulled in their capital and scored well on the return book in the first 11 months of 2017, registering total returns of 30.9%.
However, its valuation looks stretched when compared with the industry. CoreSite currently has a trailing 12-month price-to-FFO ratio of 26.2, which compares unfavorably with 16.2 witnessed by the industry. This limits the stock’s upside potential.
Shares of CoreSite have outperformed the industry it belongs to, in the year so far. This Zacks Rank #3 (Hold) company’s shares have rallied 45%, while the industry recorded growth of 4.2% during this time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Notably, solid dividend payouts are arguably the biggest enticement for REIT investors. Some other REITs which declared dividend hikes recently include Alexandria Real Estate Equities (ARE - Free Report) , SL Green Realty (SLG - Free Report) and Mid-America Apartment Communities (MAA - Free Report) .
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