2 Data Center REITs That Look Good in Any Portfolio

Key Points

• Real estate investment trusts (REITs) can offer a strong combination of diversification and cash flow. 
• Data center REITs in particular stand out as a unique play on AI and cloud infrastructure growth
• Equinix and Digital Realty are both solid options that come with Wall Street's stamp of approval. 

While most investors are familiar with stocks, many might not be fully aware of REITs, or real estate investment trusts. These are companies that own and operate income-producing properties, structured to pay out the bulk of their profits as dividends.

They have long appealed to investors seeking both diversification and additional income. By law, REITs distribute the majority of their taxable income back to shareholders as dividends, making them a reliable source of passive cash flow.

They also offer exposure to property sectors that might otherwise be difficult for individual investors to access. For portfolios dominated by individual equities, and perhaps even tech stocks in particular, REITs can help smooth out returns while still delivering upside tied to economic growth.

While many REITs focus on traditional assets like office buildings, hospitals, or retail space, a growing group specializes in data centers—the critical infrastructure powering cloud computing and artificial intelligence (AI).

For those of us on the sidelines, they’re a particularly attractive option as you can get the best of both worlds; they offer above-average payouts paired with exposure to some of the fastest-growing trends in technology. Two names in particular are worth taking a closer look at: Equinix, Inc. NASDAQ: EQIX and Digital Realty Trust Inc. NYSE: DLR.

Equinix: Global Data Center REIT With Dividend Growth 

Equinix is a California-based REIT widely regarded as the global leader in data centers. The company owns more than 250 facilities spanning 33 countries across five continents, giving it almost unmatched international reach. That scale has been a consistent driver of growth, with shares up more than 50% since October 2023, albeit with a fair share of volatility.

Equinix comes with a dividend yield of 2.47%, which makes it an attractive option when tied to the broader uptrend in its stock price. It also helps that it has a long track record of dividend growth, not to mention solid fundamentals. 

The company’s most recent earnings report delivered its biggest revenue print ever, while also being one of its most profitable. Management has also been raising its forward guidance, underscoring its confidence in its portfolio to keep delivering. 

There’s also the fact that Wall Street is a fan. Just last month, the team over at Truist Financial reiterated its Buy rating on Equinix, while boosting its price target to $961. From where the stock was trading during the first part of Thursday’s session, that’s a solid 25% in targeted upside. 

Digital Realty: Data Center REIT With 3% Yield and AI Upside

The other solid option among data center REITs is Digital Realty Trust Inc., which has also built itself into a heavyweight, with more than 300 facilities worldwide. With a share price that is up almost 90% in less than three years, it's clearly a fan favorite. 

The company reported better-than-expected results at the end of July, beating analyst expectations on revenue and earnings. Investors would have expected this kind of result to lead to further gains in the stock, but interestingly, Digital Realty’s shares have, in fact, struggled since, slipping more than 10% throughout August. 

However, that weakness may present an entry point for investors willing to look through the dip. Digital Realty's portfolio is particularly well exposed to AI-related growth, and it comes with a juicy 3.02% dividend yield. 

Like with Equinix, the analyst community is, for the most part, bullish. Just last week, the team at Citi reiterated its Buy rating, echoing the moves from Truist Financial and Raymond James from back in July. That cluster of positive calls underscores confidence that the current dip is more a function of market sentiment than deteriorating fundamentals. With global demand for data center space still strong, DLR remains a solid option for those seeking a balance of cash flow and growth.

Income Today, Growth Tomorrow

Like with all stocks, risks remain, of course. A sharp macroeconomic downturn or intensified competition from newer entrants could weigh on the performance of each of these REITs in the near term. 

But you can’t help but feel that, for long-term investors, both Equinix and Digital Realty each offer a rare combination of exposure to one of the hottest growth trends in tech, with the attractive dividend yields of an REIT.