What are we looking for?
Data centre operators ready to satisfy rising demand while offering investors sustainable dividends.
The screen
Private equity giant Blackstone Inc., along with the Canada Pension Plan Investment Board, is now acquiring Australia’s data centre group AirTrunk for about US$16.1-billion. AirTrunk is the largest data centre group in the Asia-Pacific region, with sites in Australia, Japan, Malaysia, Hong Kong and Singapore.
Market interest in the massive acquisition echoes that of TSI’s team of analysts. We see data centres as ideal investment targets for private-equity funds, pension funds as well as retail investors. That reflects their large-scale and costly assets, which create high barriers to entry for newer players, and so protect the market share of existing operators.
Data centres store and manage applications and data for organizations, and the top operators in the sector prosper from steady demand. They also benefit from being relatively immune to the ups and downs of the business cycle, and offer stable cash flows, typically backed by long-term contracts.
Our search started with dividend-paying Canadian and U.S. data centre firms well-positioned to maintain steady or rising returns. From there, we applied our TSI Dividend Sustainability Rating System, awarding points to a stock based on key factors:
- One point for five years of continuous dividend payments – two points for more than five;
- two points if it has raised the payment in the past five years;
- one point for management’s commitment to dividends;
- one point for operating in non-cyclical industries;
- one point for limited exposure to foreign currency rates and freedom from political interference;
- two points for a strong balance sheet, including manageable debt and adequate cash;
- two points for a long-term record of positive earnings and cash flow to cover dividends;
- one point if the company’s an industry leader.
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.
More about TSI Network
TSI Network is the online home of the Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated five stocks. California-based Equinix Inc. EQIX-Q has over 260 facilities globally and more than 10,000 customers, ranging from small businesses to large companies such as Amazon, Microsoft and Google. Digital Realty Trust Inc. DLR-N, based in Texas, has more than 300 data centres worldwide, along with a blue-chip client list. Iron Mountain Inc. IRM-N, headquartered in Boston, has successfully diversified beyond document and information storage into high-security data centres with special appeal to finance, health care and government clients. Warehouse and logistics leader Prologis Inc. PLD-N, based in San Francisco, announced earlier this year that it will invest as much as US$25-billion to move further into data centres. And finally, Boston-based American Tower Corp. AMT-N, already a major operator of wireless telecom and broadcast towers, took a big step into data centres and cloud computing with its 2021 acquisition of CoreSite Realty.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
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