Two of the technology sector’s hottest areas of growth are data and cyber security. But that doesn’t mean much for income-oriented investors, right?
Today, real estate investment trusts (REIT) are poised to capture some of that growth and provide income investors with a way to capitalize on it.
Exponential Data Growth
There’s no denying the growth in cloud computing, big data, wireless data, streaming media, and the Internet of Things (IoT).
The compound annual growth rates, as reported by Jefferies, are impressive: Facebook (FB) monthly mobile traffic clocks in at 34%. Netflix (NFLX) video streamed per month is 54%. And YouTube hours of upload per minute is 68%.
In simple terms, the amount of data is growing almost exponentially – and all of it needs to be processed and safely stored. As my colleague, Greg Miller, ably explained, this is all taking place at data centers.
Data centers are definitely a growth business, as demand is currently outstripping the supply of such facilities. And lucky for us, a number of data center companies are structured as REITs. In fact, there are six: CoreSite Realty (COR), CyrusOne (CONE), Digital Realty Trust (DLR), DuPont Fabros Technology (DFT), Equinix (EQIX), and QTS Realty Trust (QTS).
The yields vary in these stocks from as low as 2.5% to as high as 5.5%. But just remember – these REITs are different because of their growth component.
Indeed, their relative growth rates are reflected in their stock performances over the past 52 weeks: COR is up 50%, CONE is up 15%, DFT is up 8%, EQIX is up 30%, and QTS is up 49%. The smaller REITs are experiencing the fastest growth rates and are thus the best stock performers.
The growth rates should continue for the foreseeable future. As the CEO of CyrusOne, Gary Wojtaszek, told CNBC, “If you take all the data that exists in the world today, 90% of it was created in the last two years. It’s going to double again in the next 18 months.”
Cyber Security REIT
Another interesting REIT that investors may want to consider is focused on another rapidly growing technology niche – cyber security.
With recent “outages” at the New York Stock Exchange, The Wall Street Journal, and United Airlines, cyber security has been in the headlines a lot lately.
Corporate Office Properties (OFC) is a REIT focused on U.S. government installations involved in cyber security, research and development (R&D), and defense and national security-related technologies. The company has been around for over two decades and was formerly known as Royale Investments.
In recent years, the company cut its debt and received an investment grade rating from all three credit rating agencies. Today it yields 4.4%, but that’s not the most interesting part. What caught my eye is that it’s trading at a 52-week low and is down about 20% over the past year.
Given its unique niche and the fact that cyber security problems aren’t likely to disappear any time soon, it may be time to do some bargain shopping.
Bottom line: Whether it’s data or cyber security, today’s high-growth technology areas offer opportunities for income-oriented investors looking for a growth kicker.