By investing in high-dividend stocks, investors can generate a low-cost source of passive income. These dividends are not guaranteed, so it's important to identify companies that generate stable cash flows across market cycles while maintaining sustainable payout ratios.
Here are two high-quality, high-yield dividend stocks you can own to earn passive income while gaining exposure to the high-growth artificial intelligence (AI) industry.
Digital Realty Trust Stock
Digital Realty Trust (DLR) is a real estate investment trust (REIT) that provides data center, colocation, and interconnection solutions. We serve companies operating in areas such as AI, networking, cloud, digital media, mobile, financial services, healthcare, and gaming. Digital Realty owns and operates 309 data centers in 28 countries. Over the years, the company has invested in data centers that serve as important hubs for data communications in major metropolitan areas.
The global shift to digitalization has allowed Digital Realty to benefit from multiple secular tailwinds over the past decade. Additionally, the exponential growth of data is increasing the need for cloud-based solutions and other technologies. The costs associated with building and maintaining data center facilities are so high that companies such as IBM (IBM), Meta Platform (META), Oracle (ORCL), and Verizon (VZ) offer these solutions. That's why we're looking at Digital Realty.
Digital Realty Trust, valued at $43 billion in market capitalization, pays shareholders an annualized dividend of $4.88 per share, representing a forward yield of 3.5%. Over the past 10 years, Digital Realty has increased its FFO operations by 14% annually, demonstrating cash flow resilience.
Over the past 10 years, DLR stock has returned 160% to shareholders. Adjusting for dividends, the cumulative return is closer to 283%. Despite this impressive rally, Digital Realty stock is still trading about 22% below its all-time high, making it a buy on the market.
Of the 19 analysts covering DLR stock, 10 recommend a “strong buy,” one recommends a “moderate buy,” seven recommend a “hold,” and one recommends a “strong sell.” The average rating is “Moderate Buy.” The average 12-month price target for DLR stock is $143, implying an expected upside of approximately 5% relative to current levels.
Equinix stock
Equinix (EQIX), valued at $70 billion in market capitalization, is another REIT focused on data centers. Since April 2014, EQIX stock has returned more than 450% of his dividend-adjusted profits to shareholders, significantly outperforming the broader market.
Equinix's growth story isn't over yet. The company expects to invest $3 billion in growth projects annually through 2027, and these investments should lead to increased cash flow. Additionally, the REIT is targeting $12 billion in revenue by the end of 2027, up from $8.1 billion in 2023.
Equinix expects to increase its dividend by 10% annually over this period, significantly improving its cost yield. Over the past nine years, Equinix has raised its dividend by 10.8% each year. Currently, the REIT is paying him $4.26 per share on a quarterly basis, which translates to a forward yield of 2.3%.
Of the 22 analysts covering EQIX stock, 14 recommend a “strong buy,” one recommends a “moderate buy,” and seven recommend a “hold.” The average 12-month price target for EQIX stock is $910.42, 23.4% above the current trading price.
Notably, investment bank UBS included both Digital Realty and Equinix on its list of highest-conviction AI stock ideas for the next 6-24 months. UBS has set a consensus price target of $143 for DLR and $900 for EQIX, approximately 21.9% above the current price.
On the date of publication, Aditya Raghunath did not have any positions (directly or indirectly) in any securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please see the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
